What Lender Should I Use to Refinance My Bad Credit Car 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.


, - August 27, 2019

If you took out a bad credit car loan with a higher than average interest rate, you may be wondering when you should refinance, and who you should refinance with. You could stick to your current lender, but it's best if you rate shop and compare refinancing deals from other lenders as well.

Picking the Right Lender to Refinance With

As we mentioned, you could look to your current lender to refinance an auto loan. However, you may miss a great opportunity if you also don’t rate shop and see what refinancing options other lenders are offering.

Rate shopping is when you replace your current loan with a newer, and hopefully, better one. Ideally, you should get quotes from at least three different lenders, but the more the merrier.

When rate shopping, it’s important that you apply and make a decision within 14 days. This way, the multiple hard inquiries for the same type of credit only affect your credit score as if they were one single hard inquiry.

Picking the Right Time to Refinance a Car Loan

The right time to refinance a bad credit car loan is after at least a year has passed. The more time you wait, the more time you give yourself to improve your credit score. Plus, this gives lenders a chance to see that you're on top of your monthly payment.

The next thing you need to make sure of is that you're not upside down in your loan. Waiting longer to refinance also gives you a better chance of having equity in your vehicle. If you're looking to refinance, you can't be underwater in your loan – your loan balance must be less than the value of the car.

Refinancing’s main goal is to lower your monthly payment. You can do this in one of two ways:

  1. Lower interest rate – If you like your vehicle and you want to lower the overall cost of the loan, the best option is to refinance and qualify for a better interest rate. This way, you can save money on the monthly payment and the total interest charges.
  2. Extend the loan term – If your credit score hasn’t improved much since taking out the loan but your monthly payment is too high, you can extend the loan term. This gives you a lower monthly payment, but makes the loan more expensive in the long run because it increases the interest charges. However, once your credit has improved, you can either refinance again for a lower interest rate, or pay more each month and complete the loan early, both of which also reduce the interest charges.

One last thing to consider is that it doesn't hurt to research interest rates and trends. If you look at average interest rates for consumers that fall in the same credit score range as you, you can get a better idea for if you're getting a fair deal.

The Bottom Line

Refinancing can be a great way to make a bad credit auto loan more affordable. You do need to wait a bit before you can qualify, but you can try if your credit score has improved and you’ve been on top of the monthly payments. If you need help getting the refinancing process started, we can help you.

If you’re just looking for a car loan, we can assist with this as well. At CarsDirect, we work with dealers across America that have lenders available to work with people who have credit challenges.

Getting the process started is simple. Fill out our auto loan request form, and we’ll get to work matching you with a local dealership!

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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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