Refinancing your car loan can be a great way to make your monthly payment lower and overall cost of the loan cheaper. However, not everyone qualifies for refinancing. If you originally took out an auto loan with bad credit, you typically need to make sure some time has passed and your credit has improved before you consider refinancing.
Refinancing with Bad Credit: Timing is Everything
Because it takes time to build or rebuild credit, timing truly is everything when it comes to refinancing a car loan. In fact, there are good and bad times to consider refinancing an auto loan. Ideally, you should wait around two years before you consider refinancing, but you may not need to wait that long depending on your credit score.
If you’ve been consistently keeping up with your monthly bills since taking out your car loan, your credit score has improved, and you have equity in the vehicle, you may want to consider refinancing. If you’re struggling to make your monthly car payments, you may be able to refinance and extend the loan term for a lower monthly payment.
As for when you shouldn’t refinance, the biggest hurdle is if you have negative equity – owing more on the loan than the vehicle’s cash value. Lenders want to see equity in a car before they consider refinancing your current loan.
Your vehicle’s age could also affect your chances of refinancing, since lenders typically have an age and mileage cap on cars they’re willing to refinance. If your vehicle is too old or has too many miles, they aren’t going to approve you for refinancing.
Make sure you talk to lenders about all relevant issues related to your loan and their requirements. If your credit has improved enough, you should consider rate shopping multiple lenders to see the offers that are available to you.
Basic Car Loan Refinancing Requirements
So, what does it take to refinance a car loan? Besides having good credit, you need to make sure you meet these five requirements:
- Be current on your loan – If you’ve had past late payments on your current loan, lenders are most likely going to turn you down.
- Don’t be upside down – Just like we mentioned above, make sure your vehicle has equity.
- Make sure your vehicle qualifies – Also mentioned above, make sure your car meets the lender’s age and mileage requirements for refinancing.
- Make sure the new loan amount is acceptable – The balance you want to refinance must fit within the lender’s range.
- Make sure your vehicle has a clean title – Lenders aren’t going to refinance a car with a branded title, so make sure its title is clean.
The Bottom Line
It takes time to build credit, and it also takes time before you can refinance a bad credit auto loan. You won’t be able to jump right into it. Instead, give yourself around two years before you try to refinance for a better rate.
While we can’t help with refinancing, we can get you going on the financing journey if you’re just starting out. At The Car Connection, we work with a nationwide network of dealerships that have the lending resources available for bad credit consumers.
Getting started is simple, just complete our free and fast car loan request form, and we’ll get right to work connecting you to a local dealer.