Can I refinance a 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 mission is to help you make better financial decisions by offering you interactive financial calculators and tools, publishing original and objective content. This allows users to conduct research and analyze information for free and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this website are provided by companies that compensate us. This compensation could affect how and when products appear on this site, including, for example, the order in which they may appear in the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home loan products. But this compensation does not influence the information we publish, or the reviews appear on this website. We do not cover the entire universe of businesses or financial offers that may be available to you. PeopleImages/Getty Images
4 min read Read Published January 13, 2023
Written by Allison Martin Written by Allison Martin’s work began over 10 years ago as a digital media 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. Editor: Rhys Subitch The editor is Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to take control of their finances through providing clear, well-researched information that breaks down complicated issues into digestible chunks. The Bankrate guarantee
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If you do refinance an auto loan even with bad credit it can put you in a financial precarious position, which is why it’s advisable to first consider alternatives like the possibility of requesting loan modification or trading in your vehicle.
Why you shouldn’t refinance an auto loan using bad credit Lenders start a new loan period when you . In practice, you could receive a lower monthly payment. However, there’s one caveat that if you have improved your credit rating since taking out the original loan and you’ve improved it, you’re unlikely to get a better interest rate. Even worse, you could pay more over the life of the loan because the lender will have more time to take interest from you. If you want to reduce the amount of your monthly payments it is possible to do this. Otherwise, stretching out the loan term without scoring the lowest interest rate could result in paying more than the car is worth. It’s equally crucial to find out if your current lender charges prepayment penalties. If it does, the disadvantages of refinancing your vehicle loan could outweigh the benefits of a lower monthly payment. How to refinance an auto loan for those with bad credit If you already have a credit score that has decreased in value since purchasing your car or you need to lower your monthly payments, refinancing could be worthwhile. Similar to shopping for new or used cars, the refinancing process involves lots of research. Check your credit Review your 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 information, you should file a dispute promptly to the bureaus that handle credit– Experian, TransUnion or Equifax reporting the wrong information. You can request a copy your credit report at no cost using . Explore your options consult with your current lender regarding refinancing options available to you. Consider banks or credit unions that you have a relationship with. As well as Caribou, RefiJet and Ally that are geared towards those with less-than-perfect credit could be a viable alternative. Depending on the lender, you may be able to review the rate of your loan without impacting the credit rating. Bankrate Tip
When shopping , pay at the conditions for approval and repayment options specifically in relation to your car’s age and mileage.
Apply for a new loan Before submitting an loan application, collect any documents the lender needs to speed up the review process. They will typically require evidence of your income, residency and information regarding the current loan. Additionally, you will need to supply the amount of miles, make, model and the vehicle identification number for your vehicle. When applying, you must 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 supply. Complete the loan Examine and review the loan documents to ensure that the conditions and terms are acceptable to you. If so, sign on the dotted line in order to close the loan. The money will be transferred direct to your existing lender as well as to your current lender so that you can pay off the initial loan off. Bankrate Tip
Check with your lender to see the date you will begin making payments. From there, you’ll adhere to the new monthly payment schedule until the time you are able to pay off the loan. loan.
How can you improve your credit score prior to refinancing it is in your best interest to improve your credit score prior to refinancing your vehicle loan. The most competitive interest rates are usually only available to those with good or outstanding credit scores, and an improved credit score can be the difference between obtaining the loan or not . Here are some practical ways to : Pay all your bills promptly. Get current on any past-due loans. Reduce the amount of your credit card balance at 30 percent, or less than your credit limit. Don’t close old credit accounts. Only apply for credit as required. It is also important to keep track of your credit score to track your progress. Certain credit cards or lenders will provide free credit checks with your monthly statements. Otherwise, you may need to rely on checking them infrequently or paying to see your score. Alternatives to refinancing your car loan refinancing There are other options in the event that you analyze the data and determine that refinancing your vehicle loan isn’t the best financial move. You can trade it in. Based on the value of your vehicle is worth and how much is due on the current loan it is possible to trade it into a less expensive option , and even transfer the balance to a new loan. Request modification. Since most lenders don’t change their loans so 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 new application process. 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 skip up to three months of payment. But, they’ll be added onto the final month of your loan and you will still being charged interest. Adjust your budget. If you’re struggling , consider changing your budget to make the payments easier to afford until you qualify for a refinance. You should also increase your credit score in the meantime to get an improved interest rate when you apply 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 with bad credit may not be a healthy financial decision. Instead, explore alternatives, like adjusting your spending plan to temporarily are able to get your credit and finances back on track. Or you may be able to trade your car in for a less expensive vehicle depending on the value it’s worth.
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Allison Martin’s writing began over 10 years ago, as an online content strategist and she’s since been featured in various top financial media, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written 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 manage their finances with precise, well-researched and well-researched information that breaks down otherwise complex subjects into bite-sized pieces.
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