How to refinance your car loan when you have bad credit

A woman tells her friend how to refinance a car loan with bad credit. Image: A woman tells her friend how to refinance a car loan with bad credit.

In a Nutshell

Refinancing your car loan if you have bad credit may be possible. Some lenders specialize in providing auto loans — including refinance loans — to people with bad credit. If your credit has improved or rates have gone down since you got your car loan, you may be able to get better loan terms.

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If you’re struggling to make your auto loan payments or want to take advantage of lower interest rates, you might want to consider refinancing a car loan, even if you have bad credit.

Although there are no guarantees, you may be able to refinance your car loan with bad credit. Whether you want to refinance to lower your interest rate, reduce your loan payments or get a loan with better terms, some lenders focus on auto loan refinancing for people who have bad credit.

Here are some steps to consider if you want to refinance.



Can you refinance your car loan when you have bad credit?

Refinancing your car loan when you have bad credit may be possible, but it could be difficult to get a lower rate if your credit hasn’t improved since you got your original auto loan. In general, the lower your credit scores, the higher your interest rate.

If auto loan rates have decreased since you got your current loan, you may be able to get a better interest rate. Checking historical data on average interest rates on new auto loans is one way to tell if rates have generally improved. If the interest rate for the month you got your original loan is higher than today’s rates, it may be a good time to look into refinancing for a lower rate.

But keep in mind that new-car rates are different from refinance loan rates — historical data is just a way to get a general sense of how auto loan interest rates are trending.

If your refinance goal is to get a lower monthly payment (versus a lower rate), you may need to extend your loan term. Be aware that a longer term could increase the total amount of interest you pay over the length of your loan.

Here are some steps that can help you find an auto refinance loan that fits your needs.

1. Check your credit reports and credit scores

Before you apply for a refinance loan, check your credit. Review your credit reports for any incorrect information and dispute those errors. Inaccuracies could hurt your credit scores, which could affect your ability to qualify for a new loan.

Checking your credit and knowing your credit scores can also help set your expectations before you start shopping for a loan. For example, if a previous bankruptcy is still on your credit reports, you’ll want to shop lenders that consider applicants with previous bankruptcies in their credit history. You can check your Equifax® and TransUnion® credit reports for free on Credit Karma or request one free report per year from each credit reporting agency on annualcreditreport.com.

What credit scores do I need to refinance my auto loan?

There’s no universal minimum credit score for refinancing your auto loan. Different lenders have different requirements, and some lenders specialize in working with people with bad credit, including those who have bankruptcies or repossessions in their credit histories. But if your goal with a refinance is to get a lower rate, it helps to have better credit scores than when you applied for your original auto loan.

2. Reach out to your lender

Before looking for a new lender, you may want to reach out to your current one. If your loan is in good standing, your credit scores have improved or auto rates have gone down, your lender may be willing to refinance your loan. Some lenders won’t refinance their own auto loans, so be sure to check whether your current lender may be an option.

If your lender is open to a refinance and wants to do a hard pull on your credit reports, make sure you’re ready to shop around quickly to minimize the impact on your credit. FICO® scoring models count multiple credit inquiries of the same type within a 45-day period as a single inquiry. VantageScore counts multiple inquiries within a 14-day period as a single inquiry.

3. Shop around to find the best option

Even if your lender is willing to refinance your loan, shopping around and comparing offers can help you make sure you get the best refinance loan for your needs and budget.

Compare the annual percentage rate, loan term and any fees — such as origination fees — across offers. You can use an online auto loan calculator to estimate the total interest you’d pay with each loan option.

Best lenders to refinance your car loan when you have bad credit

If you aren’t sure where to start, check out our picks for the best auto refinance lenders that consider applicants with bad credit.

Auto Credit Express

Auto Credit Express is a lending platform that connects people with a network of lenders that offer auto financing to people with bad credit. To qualify for a refinance loan with one of the lenders in its network, you’ll need to meet certain requirements. For example, you can’t be upside down on your car loan, you must be current on your auto loan payments and your credit scores must be either good or have shown improvement. If you have credit scores below 600, you may have difficulty getting approved for a refinance loan through Auto Credit Express.

New Roads

New Roads considers applications from people with a bankruptcy, charge-off or repossession on their credit reports. To refinance with New Roads, you must have made at least 12 monthly payments on your current auto loan, and your current loan balance can’t be more than 120% of your car’s wholesale value.

Tresl

While not a direct lender, Tresl (formerly Innovative Funding Services) offers the ability to quickly see if you prequalify for auto refinance offers from any lenders in its network . This is an easy way to shop around and possibly get multiple offers — if you prequalify. But remember that prequalification isn’t a guarantee that you’ll be approved for a loan once your formally apply. And if you do get approved, your loan rate and terms may be different from the estimates you received during the prequalification process.

9 best auto refinance loans of 2020

Next steps

If you want to refinance your car loan and have bad credit, taking the time to do some homework could pay off. Checking your credit and disputing any errors, talking to your current lender and shopping around could help you get a refinance loan that meets your needs.

If you’re struggling to get qualified for auto refinancing, you may want to consider asking a friend or family member to be your co-signer. A co-signer with good credit may give you a better chance of getting approved or help you get a better loan rate and terms. If a co-signer isn’t an option and you’re struggling to make payments, check out our article on what you can do if you’re facing auto loan default.


About the author: Rebecca Giantonio Moran is a senior editor at Credit Karma with a focus on auto. She has nearly 20 years of experience in brand development, content and website strategy, copywriting, ma… Read more.