Interest Rates for Refinancing Bad Credit Auto Loans

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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.

, - September 5, 2019

If you’re considering refinancing your bad credit auto loan, what kind of interest rate can you expect? It depends on a number of things, so it’s hard to predict the interest rate you might qualify for.

According to ValuePenguin, the average interest rate on a 60-month car loan in 2019 is 13.01% for borrowers with credit scores below 660. The average interest rate is 4.21% for a 60-month auto loan, so bad credit certainly results in a higher than average interest rate.

While it’s tough to put a number on the APR you could get by refinancing, generally, the longer you wait and the more lenders you rate shop with, the better the chance you have of qualifying for a better, lower interest rate.

Auto Loan Refinancing Basics

The main goal of refinancing a car loan is to get a lower monthly payment and a cheaper auto loan. When you refinance, you have the option to qualify for a better interest rate, or the option to extend your loan term. Both can lower your monthly payment, but you should ideally try to qualify for a lower interest rate.

This is because you not only lower your monthly payment, you lower the overall cost of the loan with a lower interest rate. If you just extend the loan term, you end up paying more in interest charges in the long run. This is only a good idea if you’re struggling with your finances at the moment and need some time to get back on track.

How to Qualify to Refinance a Car Loan

Refinancing a car loan seems great, but how do you actually go about qualifying? You can refinance a bad credit auto loan if you meet the typical requirements:

  • Your credit score needs to be good, or at least improved since you took out the original loan. This generally means that at least a year or two needs to have passed.
  • You need to be current on your loan payments, and you can't be upside down.
  • Your vehicle needs to meet the new lender's age and mileage requirements.
  • Your loan amount has to fall within the new lender's acceptable range.

These are the things lenders look for when it comes to refinancing a bad credit car loan. They want to see that you’ve made all your payments on time. If you’ve been doing this for a year or more, you’re going to see your credit score increase.

Your credit score increases when you make your payments – including your vehicle payments – on time. This is because payment history makes up 35% of your FICO score, which is the most common scoring model used by lenders.

In some cases, it’s possible to refinance when your credit score hasn’t improved much, but this isn’t something you should bank on. This typically works if you’re trying to lower the monthly payment by extending the loan term, and aren’t necessarily aiming for a better interest rate.

As for how to find the best refinancing deal, you need to do some rate shopping. You should check with your current lender to see what they offer, and with at least two other lenders to compare deals.

Rate shopping is great because if you do it in a short period of time, all of the hard inquiries only count against your credit score as one single hard inquiry. This allows you to find the best deal for you without taking a large hit to your credit. Just try to get all of your applications done in around 14 days.

The Bottom Line

You aren’t going to know the interest rate you qualify for when you refinance unless you rate shop. You can’t refinance a bad credit auto loan immediately, but you should consider refinancing for a better interest rate after at least a year has passed and you've made on-time car payments each month.

If you’re looking to refinance, we can help with our trusted refinancing partner. If you’re simply looking for a bad credit auto loan, we can help with that as well.

At CarsDirect, we work with a nationwide network of special finance dealers that have the lending resources you need for a car loan even with bad credit, no credit, or bankruptcy. Simply fill out our free auto loan request form, and we’ll get started on the process of matching you to a local dealership right away.

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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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