App version: 0.1.0

Can You Refinance a Car Loan With Bad Credit?

Can You Refinance a Car Loan With Bad Credit?; If you have bad credit, it may still be possible for you to refinance your car loan. Learn more from Lantern by SoFi.
Diana Kelly Levey

Diana Kelly Levey

Updated August 13, 2021
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Your car loan’s interest rate might be much higher than you’d like. But, if you had bad credit when you got the loan, that interest rate might have seemed like the best option you could get. If that’s the case, you might now be wondering whether refinancing your car with bad credit could be a more cost-effective move than keeping your current car loan.The answer is that sometimes refinancing, even with bad credit, can be a good idea. Here, you’ll find out if and how to refinance a car loan with bad credit. 

Can You Refinance Your Car Loan Even If You Have Bad Credit?

When you think about how to refinance a car loan with bad credit, you probably wonder first of all if it’s possible. You may even have been thinking, Will refinancing my car hurt my credit score even more?The good news is that yes, you can often refinance your car, even with bad credit. Doing so can be a good idea, especially if you can get a cosigner whose credit is in good standing, if your credit has improved lately, and/or if car loan interest rates have dropped. There are also potential downsides to consider, of course. You’ll want to be aware of the cost of refinancing a car, taking into account any fees or prepayment penalties charged by your current lender. And refinancing your loan will temporarily lower your credit score--usually for no longer than about one year. But overall, refinancing may be a way to lower your monthly auto loan payments, which could help you save money. Just remember it’s important to weigh the pros and cons of refinancing your car before you make the leap and sign up for a specific loan.

When Should You Refinance Your Car?

The best time to refinance your car, even with bad credit, is when the following situations apply.
  • If Your Credit Score Has Improved. Ideally, you've been taking steps to improve your overall credit record by paying bills on time, reducing debt, and catching up on past accounts that are due. A higher credit score can improve your chances of qualifying for a loan with a lower interest rate and better terms. It’s helpful to check your credit score periodically, which you can do through many credit cards and financial institutions, to see where you are.
  • When Interest Rates Are Dropping. Whenever car loan interest rates are down could be a good time to refinance your car. This is especially true if you have a few years left on your car loan and you can lower the interest by a few points. Refinancing to a rate that’s lower by 2 or 3 percentage points could result in savings that will really add up over the length of your loan.
  • When Your Car’s Value Is Still High. Check out sites like Kelley Blue Book or to see what your car’s current value is. If the car’s value has dropped significantly and you owe more than the car is worth, it’s usually not a good idea to refinance. If the car is holding its value, this may be a good time to refinance it, assuming that interest rates are lower than they were when you bought the car.
  • If You’re Struggling to Make Your Car Payments. When your auto loan interest rate is very high and you still have a few more years left on the loan, refinancing could be an option to reduce your monthly payments and help free up some cash in your budget. You may want to seek out a service that will compare auto loan refinancing options for you.      

Comparing Auto Loan Refinance Lenders for Bad Credit

When you’re considering refinancing your car loan and have bad credit, here are some tips to keep in mind as you choose a lender.
  • Compare Multiple Loans. Don’t automatically settle for the first loan you find. Research to find the best loans to help you lower your car loan payments.
  • Examine the Interest Rates. This is a key point when comparing loans. You might want to look up what a good interest rate on a car loan is these days. But remember you need to allow for your bad credit as well as factors like whether it’s for a new car loan, used car loan, or refinanced car loan. As of February 2021, if you’re refinancing a car loan and your credit score is in the 451-599 range, your interest rate is likely to be around the average rate of 3.49%. If your credit score is between 600 and 699, that refinanced loan interest rate could be 2.49%.
  • Look at the APR. The lender should provide you not only with what your monthly payment would be, but also the annual percentage rate (APR). This figure explains what you will be paying above principal every year and includes not only interest but also any fees. 
  • Consider the Length of the Loan. Your monthly payments and even your interest rate might seem a lot lower but you’ll also need to look at the length of your refinanced car loan. You don’t want to find yourself with extended car payments that go beyond your initial loan and don't ultimately save you money. 
  • Make Sure You Can Afford the Monthly Payments. A great interest rate won’t help you if you still can’t pay the monthly payments on the loan, so be sure you understand what the bill will be every month.
  • Ask About Promotions. First you might want to ask your current lender about refinancing with it and inquire about any promotions it might have. Take those numbers when you shop around with other lenders to see what they can offer you.
  • Be Careful with Subprime Lenders. Lenders that specialize in refinancing for people with bad credit may be appealing, but be careful. Some may be predatory and charge exorbitant interest rates. That’s another reason to be sure to do your research and compare options!

The Takeaway

It may be possible to refinance your car with bad credit if you research your options and find a reputable lender that will work with you. Refinancing to a better rate after your credit score has improved and/or the interest rates have decreased can save you money in the long run. Using a cosigner who is in good credit standing might help you get a better rate and lower your monthly car payment.As you’re researching your different loan refinancing options, Lantern by SoFi can help. With us, you can fill out one simple form to access loan offers from multiple lenders in our lending network.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit ( tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0621105

Frequently Asked Questions

Should I refinance if I have bad credit?
What does my credit score have to be to refinance?
Will refinancing my car hurt my credit even more?
Is it worth it to refinance when I have bad credit?

About the Author

Diana Kelly Levey

Diana Kelly Levey

Diana Kelly Levey is a journalist, content marketing writer, author, and editor with over 20 years of experience working in national and New York City media. Her personal finance and lifestyle clients include Bloomberg Businessweek, MSN, NASDAQ, Synchrony Bank, Citi, Happy Money, Thumbtack, Angie's List, Apartment Therapy, Men's Health, Real Simple, and many more.
Share this article: