Can I refinance my car loan with bad credit? Part Of Refinancing a Car Loan In this series Refinancing a Car Loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive tools and financial calculators that provide objective and original content. We also allow users to conduct studies and compare data for no cost to help you make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example for instance, the order in which they may appear in the listing categories in the event that they are not permitted by law for our mortgage or home equity products, as well as other products for home loans. However, this compensation will have no impact on the content we publish or the reviews you see on this site. We do not include the universe of companies or financial deals that could be available to you. PeopleImages/Getty Images
4 min read Read Published January 13, 2023
Written by Allison Martin Allison Martin Written by Allison Martin's career began more than 10 years prior to that as a digital content strategist. She's been featured in a variety of top financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch The editor is Auto loans Editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down complicated subjects into bite-sized pieces. The Bankrate guarantee
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While yes, you can refinance an auto loan even with bad credit it can put you in a difficult financial situation, so it's best to first consider alternatives like asking for loan modification or selling your vehicle.
Why you shouldn't refinance the car loan with bad credit Lenders start a new loan term once you . In practice, you could get a more affordable monthly payment. However, there's a caveat that if you have improved your credit rating since taking out the initial loan, you likely won't receive a lower interest rate. In addition, you may be paying more over the course of the loan because the lender has more time to collect interest from you. If you need to lower your monthly payment, this can work. In other cases, prolonging your loan duration without getting the lowest interest rate could cost you more than your vehicle is worth. It's equally crucial to find out if your current lender charges prepayment penalties. If they do, the negatives of refinancing your vehicle loan might outweigh the benefits of a reduced monthly payment. Refinancing a car loan for those with bad credit If you already have a and have decreased since you purchased your vehicle, or you absolutely need an easier payment it could be worth refinancing. Similar to shopping for new or used cars the process of refinancing involves lots of investigation. Examine your credit credit score and report to stay clear of any surprises before you start searching for a new loan. If you find any incorrect or out-of-date data, make a complaint immediately at the three credit bureaus --- Experian, TransUnion or Equifax -- reporting the incorrect data. You are able to request a copy your credit report free of charge by contacting . Explore your options consult with your current lender regarding refinancing possibilities that might be open to you. Look into credit unions and banks that you have a relationship with. Also, like Caribou, RefiJet and Ally that are geared towards consumers with less than perfect credit could be a viable option. Based on the lender you can be able to review the rate of your loan without impacting the credit rating. Bankrate Tip
When you shop, pay at the repayment options and approval requirements -- especially in relation to your car's age and mileage.
Apply for a fresh loan Before you submit an loan application, you must gather all documents the lender will need to expedite the process of review. Most will request evidence of your income, residency , and other information regarding your current loan. Additionally, you will need to provide your mileage in addition to the make, model, and the vehicle identification number for your vehicle. When you apply, ensure that you fill out the form correctly to avoid discrepancies that can cause a rejection of your application. The lender will confirm the information you have provided. Close the loan Examine the loan documents to ensure the terms and conditions are in place for you. If they do, then sign on the dotted line in order to close the transaction. The money will be sent direct to your existing lender or to you in order to pay the original loan off. Bankrate Tip
Check with your lender to see when you begin making payments. From here, you'll adhere to the new monthly installment schedule until the time you are able to pay off the loan. loan.
How can you improve your credit score before refinancing It is in it's best interest for you to increase your credit score before refinancing your car loan. The lowest interest rates are generally only available to those with good or excellent creditscores. having a better credit score could make the difference between getting a . Here are some ways to make sure you pay your bills promptly. Be current on past due debts. Reduce the balances on your credit cards at 30 percent, or less of the credit limit. Don't close old credit accounts. Only apply for credit as needed. It is also important to be aware of your credit score in order to track your improvement. Certain credit card companies or lenders will provide free credit checks on your monthly statement. In other cases, you might have to check often or making payments to check your score. Alternatives to refinancing your car loan refinancing Other options are available if you run the numbers and decide refinancing your vehicle loan isn't a wise financial move. You can trade it in. Based on the value of your vehicle is worth and how much is owed to the loan and the amount of your loan, you may be able to trade it in for a cheaper option , and even take the remaining balance and roll it into an entirely new loan. Request modification. Since the majority of lenders don't modify their loans so you can request this in the form of . This permits you to alter payment terms -- and even interest rateswithout going through a new application process. It is possible to defer payments. This option is only available when you're in a financial crisis that is short-term, but it is an option. It is possible to cut off up to 3 months of installments. But, they'll be added on to the end of your loan and you'll incur interest. Change your budget. If you are , consider adjusting your budget to make your payments less expensive until you are eligible to refinance. You should also increase your credit score in the meantime to get an improved interest rate in the event of applying for an additional loan. The bottom line Unless you are experiencing financial hardship and risk having problems if you don't reduce the amount of payments, refinancing on bad credit may not be the best financial option. Instead, explore alternatives, for example, adjusting your budget temporarily until you get your credit and finances back in order. Or you may be able to sell your car for a less expensive vehicle depending on the value it's worth.
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Written by Allison Martin's work started over 10 years ago, as an expert in digital content, and she's since been featured in various top financial media, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances with clear, well-researched details that cut otherwise complex subjects into bite-sized pieces.
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