If you're stuck with a poor credit rating you're likely to be offered a car loan with a high rate of interest. In general, if your FICO score is less than 640, you will be offered a subprime category interest rate. Although the interest rate offered depends on different factors, most customers with bad credit and low income are given an interest rate that's nearly 20 percent higher than the rate offered to customers belonging to the prime category. Due to this reason, it's important to consider refinancing your auto loan after two or three years, to get a low interest rate and save money.
Finding a Bad Credit Car Refinance Loan:
- Before refinancing your auto loan, you should review your credit history and look for any errors or discrepancies that can be altered. Once these discrepancies are sorted out, you should research some of the major banks and lending institutions in the US.
- You could choose to work with an independent auto loan company online, to compare auto loan refinancing rates and options. These independent companies look for the best quote available, based on your credit score and personal details.
- Some websites that you should visit before choosing any lender to work with include Bankrate.com and CapitalOne Auto Finance. Even if you're able to save $100 on monthly payments, you will be saving several thousands over the tenure of your loan. Make sure you use online refinance calculators available on these websites to find out how much you will be saving.
- If you've taken a bad credit auto loan, you should make sure you work on your credit score by making timely payments, so that you can refinance the loan at a later stage. Once your score is good, try to make a higher down payment on the loan, to qualify for a better rate of interest.
- If you've taken a loan with 21 to 25 percent APR you need to make sure you refinance the loan as quickly as possible. This is because most lenders offer you an auto loan that charges you most of the interest amount in the first two years of the loan. Moreover, since the lender who offered you the auto loan won't refinance your loan, you need to contact other banks or financial institutions to get a refinanced loan.
- You could also visit Lending Tree or E-Loan to find auto loans with lower interest rates and good payment options.
- Another way to save money on your auto loan is to make extra payments towards the principle amount every month, in order to pay off the loan quickly. However, since some lenders charge you a loan pre-payment penalty for paying off the loan before it expires, you need to read your auto loan contract carefully before signing it.
- Many people fail to look at refinancing as an option because they think that it involves a lot of paperwork or an appraisal. Since auto loan refinancing is based on the outstanding amount of your loan payment, there isn't any appraisal involved.
If you don't plan to refinance your auto loan, you will end up losing thousands of dollars that you could have put aside in a retirement plan or used elsewhere. You thus need to compare auto loan refinance offers and make calculations to save money in the long run.