Can You Refinance a Car Loan With Bad Credit?

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

When Should You Refinance Your Car?

• 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 Edmunds.com 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

• 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