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If your credit is less than stellar and you’re in the market for an auto loan refinance, you may be intrigued by ads for guaranteed auto refinancing. All borrowers won’t necessarily get approved for guaranteed auto refinancing, but what this typically means is refinancing from a lender that often may not be concerned with your credit score. Therefore, these loans, also called no credit check loans, can be useful for people with poor credit histories. But, of course, these loans typically have certain disadvantages, too, like high interest rates.When looking for guaranteed auto refinancing, compare multiple options. Also stay focused on your financial goals. Your bottom line shouldn’t be just getting approved, it should be either saving money on interest or lowering your monthly payment during a period of hardship. Below we highlight what you need to know about guaranteed car refinancing and how to navigate the process.What is Guaranteed Auto Financing?
Guaranteed auto financing refers to new car loans or used car loans you can get regardless of your credit history. Borrowers who have limited credit history or a low credit score may want to apply for guaranteed car financing so they won’t have to worry about getting denied due to a credit check.In some ways this may seem practical. A hard inquiry on your credit report may cause your credit score to go down several points. And too many inquiries may raise a red flag to lenders that you’re having cash flow issues.If you’re car loan shopping and undergo multiple hard inquiries within a 14-day window, a credit scoring model may calculate this activity as a single event.That being said, there’s no guarantee that all borrowers will qualify for auto financing. You may qualify for subprime auto loans with bad credit, but chances are that the interest rate you’ll be offered will be higher than the rate of a conventional auto loan.Is There Such a Thing as Guaranteed Auto Loan Refinancing?
You may not qualify for a lender’s “guaranteed” auto refinancing if you don’t meet the lender’s minimum standards of approval. In other words, auto loan refinancing is not guaranteed for everyone.Usually, lenders that advertise guaranteed car refinancing focus on assessing factors like a potential borrower’s income and assets rather than credit. In fact, they may not even perform a credit check. Instead, the application process will likely include income and employment verification, as well as a down payment. When refinancing, you may need equity in your car, meaning that the loan amount will be lower than the total value of the vehicle.Pros and Cons of Guaranteed Auto Loan Refinancing
There are both pros and cons to refinancing your car loan. One of the pros of guaranteed auto loan refinancing is that a credit check will probably not be required. That can make it easier for people with poor credit to get an auto loan refinance. Another pros is that you may secure a lower monthly payment with guaranteed auto loan refinancing.One of the auto refinancing downsides is that you may pay more interest over the life of your auto refinance loan if you’ve extended your term. Below are some steps you may take if you’re considering a guaranteed refinance auto loan:What Affects Your Chances of Approval?
How does car loan refinancing work? There are three primary factors that affect your odds of getting approved:Employment. If you’re opting for a guaranteed car loan refinance, your credit score may not be reviewed. Instead, a lender may look at factors like your income and employment.Debt-to-income ratio. Lenders typically want to know you can afford your monthly loan payment in addition to all of your other debts. Using your debt-to-income ratio, they’ll analyze your monthly income (before taxes are taken out) to your monthly debt payments. Think about what has changed with your income and debt before you apply to refinance your car loan.Vehicle. Most lenders have restrictions on what types of vehicles are eligible to refinance. For instance, they may have maximum age and maximum mileage standards. Finally, your loan balance may need to meet a certain threshold; a lender may not want to make a loan that’s too small or too big.How to Offset a Bad Credit Score
First, check with your existing lender to see if they’re willing to change any of your loan terms without refinancing the loan. They may prefer to negotiate rather than lose your business. If you want to refinance your car loan with bad credit, you may refinance with a cosigner. The cosigner shares responsibility for the car loan with you. This reduces risk to the lender and may therefore help you get approved for auto refinancing. Recommended: How Many Times Can You Refinance a Car?Checking Auto Loan Refinance Rates
Instead of looking solely at guaranteed refinance auto loans, make sure you review multiple lenders to find the right auto refinancing for you.Interest rates can vary greatly from lender to lender. Look at both the base interest rate and the annual percentage rate (APR), which helps you compare any finance charges associated with the loan.This is the time it’s especially important to stay focused on your refinancing goals. You may be trying to lower your monthly payments regardless of the long-term costs involved. Or you may want to save money on interest, regardless of how that affects your monthly payments. Keeping your goal in mind helps you compare loan rates and other terms in a way that serves your best interests.Checking auto loan refinance rates, however, may not be right for you if you currently have a 0% APR car loan.The Takeaway
Guaranteed car refinances may be one way to get a car refinance loan if you don’t have great credit. But you don’t necessarily need a guaranteed car refinance to find a lender that’s willing to work with you.You can use Lantern by SoFi to compare auto refinance rates. Lantern’s marketplace makes refinancing fast and easy!See if you can save on rates, payments, or overall by refinancing your car. Photo credit: iStock/dragana991
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About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
