Can I Use the Same Lender to Refinance a Bad Credit Auto Loan?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - October 1, 2019

When refinancing a car loan, you can choose to work with your current lender, but you’re also going to want to look elsewhere, especially if you took out a bad credit auto loan. Refinancing with a different lender could give you the option of better rates and terms on your new loan.

Why You Should Rate Shop when Refinancing

Refinancing happens when you replace your existing car loan with a new one – hopefully with better terms. In order to reduce your monthly payment when refinancing, you can extend the loan term, qualify for a better interest rate, or do both.

As we noted, you could refinance with your current lender if you want to, but we recommend that you shop around first. The reason why: rate shopping gives you more options to choose from.

Your current lender may have the best refinancing deal, but another lender may offer you something better, and you aren’t going to know until you rate shop. You typically have about 14 days to shop around and make a decision in order to avoid multiple hard inquiries affecting your credit score.

While rate shopping, we recommend that you also research interest rates for your current credit scoring range. When you see the rates other people are qualifying for, you can determine if you’re getting a fair refinancing deal or not.

When Is the Best Time to Refinance a Bad Credit Car Loan?

Picking the right time to refinance is important. In order to refinance, your credit score typically needs to have improved since you took out the original loan. This likely means you'll have to wait at least a year until trying. Lenders need to see that you’ve been making consistent, on-time payments on your loan. If you haven’t, you almost certainly aren’t going to qualify for refinancing.

Once you know that your credit situation and time frame are good, you need to check the equity in your vehicle. This is because the next thing lenders look at when approving someone for refinancing is how old the car is, and whether or not there’s equity in the vehicle.

Equity is when your car is worth more than what you owe on the loan. If you have negative equity, it means your vehicle is worth less than what you owe. It’s generally not possible to get approved to refinance if you have negative equity. You can remove the negative equity by paying the difference in cash or waiting it out. Once you have equity in your car, you can once again consider refinancing.

As for the vehicle’s age, lenders have requirements that need to be met. Usually, this means they don’t refinance loans on vehicles older than seven to 10 years old, or have too high many miles. The specifics vary by lender, which is yet another reason why it's important to rate shop.

Finally, you could check the current prime interest rate. The prime rate is set by the Federal Reserve, and it can fluctuate quarterly. This rate influences what interest rates lenders offer to consumers, so it wouldn't hurt to know what it is.

The Bottom Line

If you want to use your current lender to refinance your bad credit auto loan, you certainly can. However, we strongly recommend that you rate shop with other lenders and compare offers. Click here to see how much you could save by refinancing your car loan with our trusted partner.

Additionally, we can help if you need a bad credit auto loan. At CarsDirect, we work with a nationwide network of dealerships that have the lending resources available to handle unique credit situations.

Fill out our free, no-obligation car loan request form, and we’ll get right to work connecting you to a dealer near you.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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