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 aim is to assist you make better financial decisions by offering interactive tools and financial calculators as well as publishing original and impartial content. This allows users to conduct studies and analyze information for free 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 products that appear on this website are provided by companies that compensate us. This compensation may impact how and when products are featured on the site, such as for instance, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home lending products. However, this compensation will have no impact on the information we provide, or the reviews that appear on this website. We do not contain the vast array of companies or financial deals that could be available to you. PeopleImages/Getty Images
4 minutes read. Published January 13, 2023
Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital content strategist, and she’s since been published in several leading financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Editor: Auto loans Editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complex issues into digestible chunks. The Bankrate guarantee
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Although you are able to refinance the car loan when you have bad credit it can put you in a difficult financial spot so it is wise to consider other options first, such as asking for loan modification or trading in your vehicle.
There are many reasons to not refinance the car loan with bad credit Lenders start a new loan term when you . In reality, you may obtain a less expensive monthly installment. But there’s a catch If the credit scores have improved after taking out the original loan and you’ve improved it, you’re unlikely to get a better interest rate. And, even more importantly, you might have to pay more for the duration of the loan since the lender will have longer to take interest from you. If you’re looking to reduce the monthly amount you pay you can do it. Otherwise, stretching out your loan time frame without securing a lower interest rate may result in paying more than what your car is worth. It’s also important to know if your current lender is penalized for prepayment. If it does, the disadvantages of refinancing your vehicle loan may outweigh the advantages of having a lower monthly installment. How do you refinance an auto loan with bad credit If you already have a loan and it has declined in value since purchasing your car or you need an easier payment it could be worth refinancing. Just like buying an used or new car the process of refinancing involves lots of research. Examine your credit credit score and report to stay clear of any unpleasant surprises prior to shopping for the next loan. If you discover any inaccurate or outdated information, file disputes promptly with the credit bureaussuch as Experian, TransUnion or Equifax — reporting the incorrect data. You can request a copy of your credit report at no cost by contacting . Explore your options You can inquire with your current lender on refinancing options that may be offered to you. Consider banks or credit unions that you have a relationship with. Also, like Caribou, RefiJet and Ally which cater to customers with less than perfect credit could be a good option. If you are a lender you choose, you might be able check your rate without affecting your credit score. Bankrate Tip
When shopping pay close attention to repayment options and approval requirements specifically for the age of your vehicle and mileage.
Apply for a new loan Prior to submitting a loan application, you must gather all documents that the lender needs to speed up the process of reviewing. Most will request documents proving your income, residency , and other information about the current loan. You will also need to supply the amount of miles as well as the make, model, and vehicle identification number for your vehicle. When applying, you must accurately complete the forms to avoid any ambiguities that could result in a denial or rejection of the application. The lender will verify the information you have provided. Finalize the loan Review and review the loan documents to make sure the conditions and terms are acceptable to you. If yes, you must sign the dotted line to finalize the transaction. The funds will either be sent direct to your existing lender or to you in order to pay off the original loan off. Bankrate Tip
Check with your lender to find out the date you will begin making payments. From here, you’ll adhere to the new monthly payment schedule until you have paid off the refinance loan.
How to improve your credit before refinancing It is in your best interest to improve your credit score before refinancing your car loan. The best interest rates are typically only available to those with good or excellent creditscores. a higher credit score could mean the difference between getting an . Here are some practical ways to : Pay all your bills in time. Be current on past due obligations. Reduce the amounts on your credit cards by 30 percent to less than 30% than the credit limit. Don’t close your old credit accounts. Only apply for credit as needed. It is also important to keep track of your credit score to track your improvement. Certain credit card companies or lenders will offer you free credit checks on your monthly statement. Otherwise, you may need to check often or making payments to check your score. Alternatives to refinancing your car loan refinancing Other options are when you look at the numbers and decide that refinancing your car loan isn’t a smart choice for you financially. Sell it. 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 cheaper alternative and then take the remaining balance and roll it into the new loan. Request modification. Since most lenders do not modify their loans, you would apply for this type of . This permits you to alter the terms of your payment — and even interest rateswithout having to go through a fresh application process. It is possible to defer payments. This option is only available if you’re facing short-term financial hardship, but it is an alternative. You may be able to take a break of up to three months of installments. But, they’ll be added onto the last month to your loan and you’ll being charged interest. Make adjustments to your budget. If you’re struggling , consider changing your budget to make your payments easier to afford until you qualify for a refinance. Also, you should increase your credit score in the meantime in order to secure an improved interest rate in the event of applying for an additional loan. If you’re facing financial difficulties and you are in danger of being forced to take out a loan if you can’t lower the amount of payments, refinancing using bad credit may not be a healthy financial decision. Instead, explore alternatives, for example, adjusting your budget for a short period until you can get your credit and finances back to normal. It’s also possible to exchange your vehicle for a less expensive vehicle depending on the amount it’s worth.
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Written by Allison Martin’s work began over 10 years ago when she was an expert in digital content, and she’s since been featured in several leading financial outlets 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 since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing precise, well-researched and well-researched details that cut otherwise complex topics into manageable bites.
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