Refinance a Bad Credit Auto Loan

Get Car Financing
Even with poor credit.

By

Contributing Writer

David Topham has worked as a professional writer and editor since graduating from Michigan State University in 2014. In addition to contributing to CarsDirect, David also works as a content writer for Auto Credit Express where his work is featured across several automotive and auto finance blogs.


, Contributing Writer - August 21, 2017

If you're currently in a bad credit auto loan and are paying a high interest rate, refinancing your car loan is an option worth exploring. If you can refinance your current loan, you may be able to save a lot of money.

Advantages of Refinancing a Bad Credit Car Loan

The process of refinancing a car loan is pretty straightforward. Unfortunately, there are many borrowers who aren't even aware of this option. Refinancing means you replace your loan with a newer one with different terms, typically with another lender. This is primarily done to either lower your monthly payments, get a better interest rate or accomplish both.

  • Refinancing to Get a Lower Interest Rate - If you took out a bad credit auto loan, you most likely received a higher than average interest rate. But if you've made strides with your credit since taking out the loan, it's possible that refinancing your loan can get you a lower rate and save you money. This is because lower interest charges would accumulate for the remainder of the loan term.
  • Refinancing to Lower Your Monthly Payments - Other borrowers, for whatever reason, want to refinance to lower their monthly payment. This can be accomplished by extending the length of the loan, or the loan term. While this pushes back the payoff date and means you'll pay more in the long run due to interest charges, it can be just the thing to make your debt load more manageable and free up additional cash in the short term.

The latter refinancing strategy is best reserved for those having trouble keeping up with their car payment (or other bills as a result of a large car payment). But if you lower your monthly payments by extending the term, this can help you avoid credit trouble as a result of late payments or even repossession.

At the same time, this solution makes it easier to build credit. The lower monthly payments should allow you to more easily make all of your loan payments on time, which works to improve your credit scores.

Requirements to Refinance an Auto Loan

Not everybody is going to be able to get approved to refinance their car loan. There are certain rules that you need to meet in order to qualify, including:

  • You can't have negative equity, meaning the car you're financing has to be worth more than what you owe on it.
  • You can't be behind on your car payments.
  • Your car must meet the new lender's age and mileage restrictions, and your loan amount must fall within their acceptable limits too.
  • Your credit score needs to be "good" (typically a minimum of around 660 and above, although this varies from lender to lender), or at least have improved considerably in the time since you've taken out the loan.

Most lenders require good credit to refinance an auto loan. However, if you've made all of your loan payments on time for an extended period (typically for at least 18 months or more) and you've made progress improving your credit, it's possible to get approved before your overall credit score qualifies as "good."

The Bottom Line

If you're currently paying a high interest rate on a bad credit auto loan, you may want to explore refinancing to lower your monthly payment or get a better APR (or both). CarsDirect has partnered with RateGenius, an industry leading broker that may be able to help you.

If, however, you're dealing with bad credit, no credit, or other credit issues and are looking for a car loan, CarsDirect wants to help. We're partnered with a nationwide network of car dealers that know how to work with consumers in unique credit situations, and we can connect you with one near you. Get the process started by filling out our auto loan request form today.

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, Contributing Writer

David Topham has worked as a professional writer and editor since graduating from Michigan State University in 2014. In addition to contributing to CarsDirect, David also works as a content writer for Auto Credit Express where his work is featured across several automotive and auto finance blogs.


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