If you’re looking to refinance your bad credit auto loan, you certainly can use the same lender you worked with before. However, we recommend that you also apply with multiple other lenders so that you can compare offers, as you may get a better deal with a different lender.
Why Rate Shopping Helps
When you refinance a car loan, you’re replacing the existing loan with a new one with new terms. The goal is to qualify for a better interest rate than you were able to when you originally took out the loan.
Consumers who took out an auto loan that had bad credit might consider refinancing if their credit score has improved. As mentioned, you could refinance with your current lender, but you could be missing out on a great refinancing deal if you don’t shop around first.
You give yourself the chance to compare different refinancing deals when you rate shop. Just because your current lender may have a good deal available doesn’t mean that’s what you have to settle for – you could get a better offer elsewhere.
When rate shopping, it’s important you make a decision within 14 days to avoid multiple hard inquiries affecting your credit score. It’s also important that you research interest rates for your current credit scoring range to see what other consumers in similar situations are receiving.
Is There a Right Time to Refinance?
You can refinance an auto loan whenever you want as long as you qualify. In order to get approved to refinance a car loan, your credit score needs to have improved from when you took out the original loan. This means that you usually have to give yourself some time to accomplish this.
If your credit score is up, the next step is to check to see if you have equity in your vehicle. Equity is when your car is worth more than what you owe on the loan, and negative equity is when the vehicle is worth less. You typically can't qualify if you are upside down, but you can always pay off any negative equity out of pocket in order to move forward.
Another requirement that has to be met are the lender's age and mileage restrictions. Generally, lenders don't refinance vehicles that are older than seven to 10 years old with more than 100,000 miles on them, but the specifics vary from lender to lender.
Additionally, in order to qualify, the loan amount you're refinancing has to fall within the new lender's acceptable limit, and you have to be current on your loan payments.
The Bottom Line
If you feel comfortable going back to your current lender to refinance, you can. However, we strongly encourage you to rate shop with other lenders and compare deals before making a decision. You never know what offers are out there waiting for you.
If you’re not looking to refinance and simply need a bad credit auto loan, we can assist you with that. The Car Connection works with a nationwide network of dealerships that have the lending resources available to handle unique credit situations.
We'll work to connect you with a dealer in your area if you start the process by filling out our free, no-obligation car loan request form.