Why Do Bad Credit Borrowers Refinance Their Car Loans?

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - September 15, 2020

Refinancing is almost always done to save money on your auto loan. Borrowers who originally took out bad credit car loans may be able to refinance and save some cash.

How Refinancing Can Save You Money

Borrowers who look for a lender to refinance their auto loans are typically looking for a lower monthly car payment, or a way to lower their interest charges. Bad credit usually leads to being charged more in interest, but you could lower that interest rate if your credit score has improved since you started your auto loan.

There are two ways car refinancing can reduce your monthly payment: by lowering your interest rate or by extending your loan term.

A bad credit borrower can often find themselves qualifying for interest rates in the double digits, and those interest charges can add up quickly. Check out this table to see how much your interest rate and your loan term can impact how much you pay for your vehicle:

Car's Selling Price Loan Term Interest Rate Interest Charges
$12,000 60 months 15% $5,129
$12,000 72 months 15% $6,269
$12,000 60 months 10% $3,298

Lowering your interest rate is the ideal way to refinance. Interest charges over the course of your loan can really add up, and could mean paying way more than the vehicle is worth. Just extending your loan term with the same interest rate only means more interest charges, which doesn’t save you money over the length of your auto loan.

Both refinancing options can lower your monthly car payment, though. Some people lower their interest rate and extend their loan term, but whether or not this actually saves you any cash depends on what your new loan terms are.

How Do I Refinance My Car Loan?

You can either refinance with your current lender, look for another one, or try to find an online lender. Most borrowers tend to shop for another lender that may be able to offer better rates and loan terms.

As far as requirements, one of the most important parts of being able to refinance your bad credit auto loan is that your credit score needs to be good or have improved since you started your loan. Even if your credit score isn’t perfect, if you’ve worked on it and managed your loan well for a while, refinancing may be possible if you can meet the other requirements.

Having a good or better credit score isn’t the only stipulation of refinancing. While lenders vary in their specific refinancing requirements, here are some common ones that you’re likely to face:

  • You’re current on your car payments and have a good payment history.
  • Your vehicle is under 10 years old and has fewer than 100,000 miles.
  • You have equity in your car.
  • You’ve had the loan for at least one year.

If you think you can meet these criteria and you want to get the ball rolling on refinancing your bad credit auto loan, then complete our free car loan refinancing form. Our trusted partner will look for a lender that can refinance you based on your credit score.

If you don’t think you or your vehicle qualify for refinancing but you’re ready for a different auto loan, simply trading in your current car for another might be a better route. If your credit score still isn’t the best, you may need the help of a subprime auto lender.

Dealerships and Subprime Auto Lenders

A poor credit score can mean getting turned down by traditional lenders. Subprime lenders, though, look at more than just your credit reports. They use your income, living stability, and your willingness to pay to get a better picture of you as a borrower.

CarsDirect works with a nationwide network of dealerships that are signed up with subprime lenders. To get matched to a dealer near you with the lending options you need, fill out our free car loan request form.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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