Last Updated: March 16, 2022
What can you do if you don’t own a car and struggle with making car loan payments each month and would like lower interest rates? Refinancing your loan might be a solution. Refinancing includes replacing your existing car loan with a new one, which could save you money with a lower monthly payment and interest rate. But what if you wish to refinance but have bad credit? This article addresses the importance of refinancing, how you can do it, and even refinance a car loan with bad credit.
Reasons to Refinance a Car Loan With Bad Credit
Refinancing your loan can be a good idea, even with bad credit. Consider the following five reasons to refinance your loan.
Lower Monthly Payments
Consider lowering your monthly payments by focusing on your credit score and the terms of your current loan. For example, refinancing a car loan could be beneficial, leading to a more affordable amount, with or without lower interest rates.
If your budget is tight and you need to reduce your car payments, you could refinance your loan to a longer-term—for instance, from 36 months to 48. But keep in mind that while you pay less per month, you can expect to pay more over the life of the loan.
Pay Loan on Time
Refinance your car loan with bad credit gives you another opportunity to make your loan payments on time. Make a habit of paying your bills on time. Your payment history is considered one of the most critical factors in accessing your credit score. Therefore, it’s essential to always be on time with payments.
So if you’re finding it difficult to pay your loan payments on time or are near bankruptcy, you can try refinancing. For example, refinancing your car loan will help you have a lower monthly payment, which could help take pressure off your monthly budget.
Improve Credit Score
If you know how to improve your credit score, this can be the right way to go. Learning credit utilization is considered an excellent way of affecting your credit score. If not, you can choose to refinance your car with bad credit and begin to rebuild your credit score. But it’s advisable to first pay off your debts to have an improved credit score.
When it comes to refinancing, there is an option to cash out. For example, cash-out refinancing a car loan includes the replacement of your current loan with a new one, then borrowing an extra amount against the equity of your vehicle.
With cash-out refinancing, you also can get a better interest rate on your car loan, along with extra cash to cover financial emergencies. But with this option, when you refinance an auto loan with bad credit, there’s also the risk of increasing your total car loan amount more than the actual car’s cost.
Buying out your car loan can also be a good idea. Since you know your car’s history, buying it out can prove to be beneficial. Of course, this also works well if you’ve taken reasonable care of the vehicle. But even if you haven’t taken good care of the car, it’s a good idea to buy it out. But typically, you must pay extra fees for any unusual kind of wear and tear on your vehicle.
|NOTE: When purchasing a car, many buyers accept the loan package they are offered at the dealership. Many later, however, regret the conditions of the loan once they’ve started making payments.
There’s a lot of incorrect information associated with auto refinance with bad credit, much of which is linked to the following.
Become familiar with your credit profile for a better understanding of your credit score. If you have bad credit, you need to know why. You can easily download your credit score from such trustworthy sites as cibil.com. Then, scrutinize your report—sometimes mistakes happen, and inaccuracies can adversely impact your credit score.
In cases of mistakes or dispute errors on your credit report, you should immediately inform the credit bureau, and they will amend your profile within 30 days. On the other hand, if your credit reports are without errors, you need to focus on improving your credit rating.
Higher Interest Rates
When it comes to auto refi with bad credit, extending the terms of your loan typically means that you end up paying more interest over the life of the loan. Loan calculators can help determine if refinancing would be a good choice—if it can save you money or have adverse effects on your situation.
Paying higher interest rates is ever-present. Lenders also tend to charge a higher rate on older vehicles. If you compare the interest rate of your vehicle now to when you first financed it, you’d be in for a surprise.
Additional debt refers to a situation in which you consider taking more money from a creditor when you’re already burdened with a loan. Another debt on your loan balance is unsuitable for a refi car loan bad credit because it can cause multiple stress issues. It would also throw up red flags to banks, which would consider you an untrustworthy applicant.
|NOTE: A specialized tailor-made loan exists for those looking to improve their credit score or build their credit profile. It is known as the credit builder loan.
How to Refinance a Car Loan
Refinancing a car loan is a popular option. The following should help you understand how to refinance a car loan with bad credit.
Credit Score Potential
Improving your credit score can be enough for you to get lower interest rates. Markets change throughout the year, which is why you can also bring about change in your credit score—the better your credit, the more favorable your loan term.
You’ll be qualified for better terms if your credit score has improved (or potential to improve). The lack of credit (or no credit) will prove detrimental to your situation. You can also check out what affects your credit score to save yourself from the consequences of poor credit and improve your score.
Contact Your Lender
When it comes to refi your car with bad credit, you can contact your lender to explore options you may have. Then, weigh your lender’s offers with other options and make an informed decision based on your best interest. You could also use a co-signer if they meet the lender’s criteria.
Shop for the Best Loan Rates and Terms
When comparing your refinancing options for your car loan, make sure you get the complete picture. Terms of your loan, interest rate, and other associated fees are all factors you need to consider before finalizing your loan.
These factors help access your total loan amount, including any other fees that get neglected in the process, such as the annual percentage rate (APR). The APR reflects your interest rate, plus additional fees. A high APR means money coming out of your pocket until you pay off the loan.
Choose a bad credit auto refinance loan with terms that best suit your requirements—a loan that has a low-interest rate and no hidden fees. (Loan calculators can assist you in determining the best deal for you.)
|NOTE: One credit score statistic indicates that even your closed credit card accounts can keep showing up on your credit reports, affecting your credit scores and report for the next 10 years.
|Refinancing has many factors attached to it that need to be seriously weighed before contacting your lender about refinancing.
|Consider improving your credit score, taking out emergency cash, or a lease buyout on your car, relieving the pressure of paying high-interest rates on your loan.
|Your creditor should have your best interest in mind when they refinance car loans with bad credit. You can easily calculate the direction of your monthly car payments by using loan calculators.
Best Place to Refinance an Auto Loan With Bad Credit
The following options provide car loan refinancing with bad credit.
Auto Credit Express
Auto Credit Express provides the largest network of bad credit car dealers in the US. This leading provider is popular because they specialize in helping those stuck with bad credit car loans.
Autopay is trusted for its auto loan refinancing with bad credit because it has been in the business for many years. They provide low-interest rates with a smooth refinancing process, allowing you to access excellent rates after applying.
Capital One provides ample options to refinance your car loan with bad credit. They check your credit score in advance so that later there’s no problem in refinancing your car loan. And they don’t conduct a hard credit check.
|NOTE: Refinancing is typically done by applying for a new loan from a new lender. If you wish to stick to your old lender—regarding auto refi for bad credit—you will need to take a top-up loan or pre-close your existing loan and apply for a different loan from the same bank.
Before considering refinancing, it’s essential to understand your current loan situation and check for penalties in loan terms. You should also consider the length of your refi car loan bad credit and try to keep it as short as you can within your budget. In addition, try to find a loan term combined with the lowest interest rate to ensure the best deal on your auto refinancing.
Shopping around refers to comparing interest rates and loan terms from multiple lenders. All lenders have their formulas for calculating your rate—so getting more than one quote is essential. In some cases, you may be able to get prequalified before applying and receive a quoted rate with only a soft credit check, which won’t impact your credit score.
If your original auto loan has a prepayment penalty, you’ll need to pay the original lender when the new one pays off the debt. You can check the contract you received from the dealer to find out if there’s such a penalty. Some lenders charge a processing fee when refinancing my car loan with bad credit, which can eat into potential savings.
Each time you apply for credit, a hard inquiry will reduce your credit score by some points. In addition, if you open a new loan account, it will lower the average age of your accounts, which could also lower your credit score. But there is NO minimum credit score needed to refinance a car loan with bad credit.