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 better financial choices by offering interactive tools and financial calculators that provide objective and original content. We also allow you to conduct research and compare information for free and help you make sound financial decisions. Bankrate has agreements with issuers such as, 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 come from companies that pay us. This compensation may impact how and where products appear on this website, for example the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity and other home loan products. But this compensation does have no impact on the content we publish or the reviews appear on this website. We do not cover the universe of companies or financial deals that could be accessible to you. PeopleImages/Getty Images
4 minutes read. Published 13 January 2023
Written by Allison Martin Written by Allison Martin’s work started over 10 years prior to that as a digital content strategist, and she’s since been published in several leading financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with concise, well-researched and reliable information that breaks down complicated issues into digestible chunks. The Bankrate promises
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There are money-related questions. Bankrate can help. Our experts have been helping you master your money for over four decades. We strive to continuously give our customers the right advice and tools needed to succeed throughout life’s financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is truthful and reliable. Our award-winning editors and journalists create honest and accurate information to assist you in making the right financial choices. Our content produced by our editorial staff is objective, factual and is not influenced from our advertising. We’re open regarding how we’re able to bring quality content, competitive rates and useful tools to our customers by revealing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. This compensation could affect the way, location and when products appear within listing categories in the event that they are not permitted by law for our mortgage, home equity and other home loan products. Other elements, such as our own rules for our website and whether the product is available in your area or at your personal credit score could also affect the manner in which products are featured on this website. While we strive to provide an array of offers, Bankrate does not include information about every credit or financial item or product. Are your car loan payments stretching your budget? Perhaps you’ve thought about refinancing your loan in order to lower your monthly payments or perhaps get a lower interest rate. However, if your credit score is low this may not be possible or even save your money. Instead, consider alternatives first. Can I refinance a car loan with bad credit?
Although you are able to refinance a car loan when you have bad credit it can put you in a difficult financial position, which is why it’s advisable to think about alternatives such as asking for loan modification or trading in your vehicle.
The reason you shouldn’t refinance an auto loan with bad credit Lenders start a new loan term when you . In reality, you may receive a lower monthly installment. However, there’s a caveat: Unless the credit scores have improved after taking the initial loan but you’re not likely to receive a lower interest rate. And, even more importantly, you might have to pay more for the duration of the loan due to the fact that the lender will have longer to collect interest from you. If you’re looking to reduce the monthly amount you pay you can do it. In other cases, prolonging the loan time frame without securing a lower interest rate may mean paying far more than the vehicle is worth. It’s equally important to determine whether your current lender has prepayment penalties. If it does, the disadvantages of refinancing your vehicle loan might outweigh the benefits of having a lower monthly installment. How to refinance the car loan for those with bad credit If you already have a credit score that has decreased the amount you pay for your vehicle or you need an easier payment Refinancing might be a good idea. And just like shopping for new or used cars the process of refinancing involves an extensive amount of investigation. Make sure you review your credit score and report to avoid any unpleasant surprises before looking for an additional loan. If you find any incorrect or outdated information, file disputes promptly with the credit bureaus -such as Experian, TransUnion or Equifax — reporting the incorrect information. You are able to request a copy your credit report for free by contacting . Consider your options consult with your current lender regarding refinancing possibilities that might be available to you. Think about credit unions or banks you are currently doing business with. As well as Caribou, RefiJet and Ally that are geared towards those with less-than-perfect credit may also be an option. Based on the lender you choose, you might be able check the rate of your loan without impacting your credit score. Bankrate Tip
When shopping pay close focus on repayment options and approval requirements — especially for your vehicle’s age and mileage.
Apply for a fresh loan Prior to submitting a loan application, gather any documents the lender requires to expedite the review process. The majority of lenders will require proof of income, residency , and other information about your current loan. You will also need to supply the amount of miles as well as the make, model, and vehicle identification number for your car. If you are applying, be sure to accurately complete the forms to avoid any ambiguities that could cause a rejection to your request. The lender will verify the information you have provided. Complete the loan Check your loan documents to ensure that the terms and conditions are in place for you. If they do, then sign on the dotted line to finalize the loan. The funds will either be sent directly to your current lender or to you to allow you to pay off the original loan off. Bankrate Tip
Check with your lender to see when you begin making payments. From here, you will adhere to the new monthly payment schedule until the time you are able to pay off the loan. loan.
How to improve your credit before refinancing It is in your best interest to improve your credit score prior to refinancing your car loan. The best interest rates are typically reserved for borrowers with good or excellent credit, and a higher credit score could be the difference between obtaining a . Here are some ways to make sure you pay your bills promptly. Be current on past due loans. Reduce the balances on your credit cards by 30 percent to less than 30% than your credit limit. Do not close credit accounts that you have closed. Only apply for credit as needed. You should also keep track of your credit score to monitor your growth. Some credit cards or lenders will provide free credit checks with your monthly statements. Otherwise, you may need to make sure you check frequently or making payments to see your score. Alternatives to car loan refinancing There’s a variety of options available if you run the numbers and decide that refinancing your car loan isn’t a wise financial move. Sell it. Based on the value of your vehicle is worth and how much is due on the current loan and the amount of your loan, you may be able to trade it in for a cheaper option and possibly transfer the balance to a new loan. Request a modification. Since most lenders do not modify their loans You can ask for this in the form of . This lets you adjust payment terms — and, sometimes, interest rates- without having to go through a fresh application process. You can also defer payments. This option is only available if you’re experiencing financial hardship in the short term However, it’s an option. It is possible to take a break of up to three months of payments. But, they’ll be added onto the final month to your loan and you’ll be accruing interest. Change your budget. If you are , consider adjusting your budget to make your payments less expensive until you are eligible to refinance. It is also advisable to increase your credit score in the meantime to get an improved interest rate in the event of applying for the next loan. The main thing to remember is that unless you’re experiencing financial hardship and risk having if you can’t lower the amount of payments, refinancing on bad credit may not be a healthy financial decision. Instead, consider alternatives like adjusting your spending plan for a short period until you can are able to get your finances and credit health back to normal. Or you may be able to sell your car to a cheaper car depending on the value it’s worth.
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Written by Allison Martin’s work started over 10 years ago when she was an expert in digital content, and she’s since been featured in a variety of top financial publications which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances with concise, well-studied facts that break down otherwise complicated topics into digestible pieces.
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