Can I refinance my car loan when I have 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 financial calculators and tools that provide objective and original content. This allows users to conduct studies and compare information for free and help you make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies who pay us. This compensation can affect the way and where products appear on the site, such as for instance, the sequence in which they appear within the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other home lending products. This compensation, however, does not influence the information we publish, or the reviews you read on this site. We do not cover the universe of companies or financial offers that may be open to you. PeopleImages/Getty Images
4 min read Published 13 January 2023
Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital media 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. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to take control of their finances through providing concise, well-researched and reliable information that breaks down complex issues into digestible chunks. The Bankrate promise
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Although you are able to refinance the car loan when you have bad credit it can put you in a financial precarious spot so it is wise to think about alternatives such as the possibility of requesting loan modification or trading in your car.
The reason you shouldn’t refinance a car loan that has bad credit Lenders start a new loan term once you . In the real world, you might get a more affordable monthly installment. But there’s a catch: Unless your credit score has improved since you took the initial loan but you’re not likely to receive a lower interest rate. In addition, you may pay more over the life of the loan since the lender will have more time to take interest from you. If you’re looking to reduce the amount of your monthly payments you can do it. In other cases, prolonging your loan duration without getting the lowest interest rate could result in paying more than what your car 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 could outweigh the benefits of a lower monthly payment. How do you refinance the car loan for those with bad credit If you already have a credit score that has decreased in value since purchasing your car, or you absolutely need a lower payment Refinancing might be a good idea. Just like buying new or used cars the process of refinancing involves lots of study. Make sure you review your credit score and report to stay clear of any surprises before you start searching for a new loan. If you discover any inaccurate or out of date data, make a complaint immediately at the three credit bureaus — Experian, TransUnion or Equifax reporting the wrong data. You can request a copy your credit report free of charge using . Explore your options You can consult with your current lender regarding refinancing possibilities that might be offered to you. Look into credit unions and banks that you have a relationship with. As well as Caribou, RefiJet and Ally that are geared towards customers with less than perfect credit could be a good alternative. If you are a lender you can be able check the rate of your loan without impacting the credit rating. Bankrate Tip
When shopping pay close attention to repayment options and approval requirements particularly for your vehicle’s age and mileage.
Apply for a fresh loan Before you submit the loan application, gather any documents the lender will need to expedite the process of review. Most will request evidence of your income, residency , and other information about the current loan. You will also need to provide your mileage, make, model and the vehicle identification number for your car. When applying, you must ensure that you fill out the form correctly to avoid any errors that could result in a denial to your request. The lender will verify the information you supply. Complete the loan Review your loan documents to make sure 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 straight to the current lender and/or to you so that you can pay the initial loan off. Bankrate Tip
Check with your lender to determine when you can begin making payments. From here, you’ll follow the new monthly payment schedule until the time you are able to pay off your refinanced loan.
How to improve your credit before refinancing It is in your best interest to improve your credit score prior refinancing your vehicle loan. The best interest rates are generally only available to those with good or excellent creditscores. a higher credit score could be the difference between obtaining an . Here are some ways to make sure you pay your bills on time. Make sure you are current on all past due debts. Reduce the amounts on your credit cards by 30 percent to less than 30% of your credit limit. Don’t close your old credit accounts. Only apply for new credit when you need to. Also, you should keep track of your credit score to monitor your improvement. Some credit cards or lenders will offer you free credit checks on your monthly statements. Otherwise, you may need to make sure you check them infrequently or paying to see your score. Alternatives to the car loan refinancing Other options are available in the event that you analyze the data and decide refinancing your car loan isn’t a wise choice for you financially. You can trade it in. Depending on what your car is worth and the amount that is due for the loan it is possible to trade it in for a more affordable option and possibly take the remaining balance and roll it into the new loan. Request a modification. Since the majority of lenders don’t change their loans You can ask for this in the form of . This permits you to alter the terms of your payment — and even interest rateswithout having to go through a whole new application procedure. Defer payments. This option is only available if you’re in a financial crisis that is short-term however, it’s an option. You can cut off up to 3 months of installments. However, they’ll be tacked onto the final month of your loan and you’ll be accruing interest. Change your budget. If you’re struggling , consider making adjustments to your budget in order so that your monthly payments are more affordable until you qualify for a refinance. Also, you should increase your credit score in the meantime to qualify for an improved interest rate when you apply for the next loan. The bottom line Unless you are experiencing financial hardship and risk having problems if you don’t reduce the amount of payments, refinancing with bad credit may not be an appropriate financial choice. Instead, look into alternatives, such as adjusting your spending plan to temporarily get your finances and credit health back in order. You may also be able to trade your car in to a cheaper car, depending on how much it’s worth.
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Allison Martin’s work began more than 10 years ago as an expert in digital content, and she’s since been featured in a variety of top financial publications such as 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 dedicated to helping readers gain the confidence to take control of their finances through providing precise, well-researched and well-researched information that breaks down complex topics into manageable bites.
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