It may be possible to refinance a vehicle when you have bad credit, so long as it's better than it was when you first took out your loan. The better your credit score the more refinancing opportunities may open up, but don't count yourself out with a lower score just yet…
Refinancing With a Poor Credit Score
If you originally took on a bad credit car loan, and your credit score has improved, you may not be out of the running for refinancing – it all depends on the lender's requirements. However, auto loan refinancing is typically reserved for people with credit scores of around 660 and above, which is considered good credit to most lenders.
Refinancing means replacing your current car loan contract with a new one that has different rates and/or terms while keeping the same vehicle.
It's sometimes possible to refinance with your current lender, so as a bad credit borrower, you may want to start by finding out whether your lender handles refinancing. If not, there are plenty of refinancing lenders out there, but you may have to do a little research to find one whose qualifications you meet.
Many borrowers often choose to refinance with a different lender, and it's wise to do a little rate shopping before agreeing to the first refinancing offer you receive. Refinancing quotes are typically good for a short period of time which allows you to compare rates between a few different lenders. And, if you rate shop the right way, you can compare offers with less impact on your credit score.
Qualifying to Refinance Your Car
No matter your credit situation, there are requirements for you to meet in order to be considered for refinancing. Specifics vary, but there are generally a few stipulations to follow such as:
- There must be equity in the vehicle – its value must be higher than your loan balance.
- You must be current on your auto loan – no missed or late payments.
- Your car meets refinancing requirements – typically no more than 10 years old or 100,000 miles.
- At least a one-year-old loan – your credit score must have gone up during this time.
In addition to the factors listed above, it's important to remember that the amount you're asking to refinance must be acceptable to the lender. Different lenders work with different amounts – just like bad credit car loans, refinancing isn't one size fits all.
Are There Benefits to Refinancing?
The main benefit of refinancing is to save money each month by paying less for your auto loan.
There are two ways to accomplish this: qualifying for a lower interest rate or qualifying for a longer loan term. In some cases, you may even qualify for both! Either option allows you to lower your monthly car payment, but only with a lower interest rate can you save money overall. If you stretch out your financing without reducing your interest rate you still pay less each month, but in the long run, you end up paying more in interest charges.
Another benefit to refinancing your vehicle is that it could keep you from defaulting on your auto loan. If you're having trouble keeping up with payments due to a change in your situation, refinancing may be your ticket to keeping the car you're driving and keeping up with its payments.
Can't Refinance Your Vehicle?
If you're ready to get the ball rolling on refinancing your vehicle, but are having trouble qualifying, there are other options to help you stop auto loan default. One of these is to trade in your car for something more affordable.
Though this may not be the outcome you're hoping for, it's important to remember that a successful auto loan can help build credit. This can help you get into – and stay in – a vehicle you love. If you're having trouble keeping up with your loan, defaulting on it can lead to repossession, which only makes things worse. Rather than going down this path, let us help you find a dealership that may accept your trade-in and your bad credit.
If you're ready to get back on the road with a more budget-friendly bad credit car loan, The Car Connection wants to help. We've gathered a nationwide network of special finance dealerships that are signed up with lenders that work with tarnished credit. Get started by filling out our free auto loan request form, and we'll get right to work connecting you with a local dealer at no cost to you.