Can I refinance a vehicle loan even with bad credit? Part Of Refinancing a Car Loan In this series Refinancing a Car Loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive financial calculators and tools that provide objective and original content. This allows users to conduct research and compare data for no cost – so that you can make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies that pay us. This compensation can affect the way and when products appear on this website, for example for instance, the sequence in which they appear within the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other products for home loans. This compensation, however, does not influence the information we provide, or the reviews you see on this site. We do not cover the vast array of companies or financial offers that may be open to you. PeopleImages/Getty Images
4 min read Published 13 January 2023
Written by Allison Martin Allison Martin Written by Allison Martin’s work began over 10 years ago as a digital content strategist. She’s been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch The editor is Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances by providing concise, well-researched and reliable information that breaks down complicated topics into manageable bites. The Bankrate guarantee
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While yes, you can refinance an auto loan with bad credit it can put you in a precarious financial position, which is why it’s advisable to consider other options first, such as asking for loan modification or trade in your vehicle.
The reason you shouldn’t refinance an auto loan that has bad credit Lenders start a new loan term once you . In reality, you may receive a lower monthly installment. But there’s a catch: Unless you have improved your credit rating since you took the initial loan, you likely won’t get a better interest rate. In addition, you may have to pay more for the duration of the loan due to the fact that the lender will have longer to take interest from you. If you want to reduce the amount of your monthly payments, this can work. If not, extending the loan term without scoring a lower interest rate may mean paying far more than what your car is worth. It’s equally important to determine whether your current lender has prepayment penalties. If so, the drawbacks of refinancing your car loan might outweigh the benefits of a lower monthly payment. Refinancing a car loan for those with bad credit If you already have a loan and it has declined in value since purchasing your car, or you absolutely need a lower payment Refinancing might be a good idea. Similar to shopping for an used or new car the process of refinancing involves lots of study. Make sure you review your credit score and report to avoid any surprises before you start shopping for an additional loan. If you discover any inaccurate or outdated information, file disputes promptly with the credit bureaus -such as Experian, TransUnion or Equifax and report the inaccurate data. You can request a copy of your credit report free of charge by contacting . Explore your options You can check with your existing lender regarding refinancing possibilities that might be offered to you. Think about credit unions or banks that you have a relationship with. And — like Caribou, RefiJet and Ally — that cater to consumers with less than perfect credit might be a viable option. Based on the lender you can be able to check the rate of your loan without impacting the credit rating. Bankrate Tip
When you shop, pay attention to your options for repayment and the requirements for approval specifically for your vehicle’s age and mileage.
Apply for a fresh loan Before submitting a loan application, gather any documents that the lender will need to expedite the process of review. Most will request proof of income, residency and information regarding the current loan. Additionally, you will need to supply the amount of miles as well as the make, model, and the vehicle identification number for your vehicle. If you are applying, be sure to be sure to fill in the correct information on the application forms to avoid any ambiguities that could result in a denial or rejection of the application. The lender will verify the information you supply. Close the loan Review your loan documents to ensure that the conditions and terms are acceptable to you. If yes, you must sign the dotted line to complete the transaction. The money will be sent direct to your existing lender or to you in order to pay the original loan off. Bankrate Tip
Check with your lender to see the date you will begin making payments. From here, you will adhere to the new monthly installment schedule until you have paid off the loan. loan.
How to improve your credit before refinancing It is in it’s best interest for you to improve your credit score prior to refinancing your car loan. The most competitive interest rates are typically reserved for borrowers with good or excellent creditscores. having a better credit score could be the difference between obtaining an . Here are some tips to pay all your bills on time. Be current on past due debts. Reduce the amount of your credit card balance by 30 percent to less than 30% of your credit limit. Don’t close your old credit accounts. Only apply for credit as needed. Also, you should keep track of your credit score to monitor your progress. Some credit cards or lenders will provide free credit reports with your monthly statements. In other cases, you might have to rely on checking frequently or making payments to see your score. Alternatives to car loan refinancing Other options are if you run the numbers and determine that refinancing your vehicle loan isn’t a wise financial move. Trade it in. Depending on what your car is worth and the amount that is due on the current loan and the amount of your loan, you may be able to trade it in for a more affordable option , and even transfer the balance to an entirely new loan. Request modification. Since the majority of lenders don’t refinance their own loans, you would apply for this type of . This lets you adjust payment terms — and even interest rates- without having to go through a fresh application process. It is possible to defer payments. This option is only available if you’re experiencing financial hardship in the short term However, it’s an option. It is possible to take a break of up to three months of payments. But, they’ll be added onto the final month the loan and you’ll be accruing interest. Change your budget. If you’re struggling , consider making adjustments to your budget in order so that your monthly payments are less expensive until you are eligible for a refinance. Also, you should improve your credit score in the meantime to get a better interest rate when you apply for an additional loan. If you are experiencing financial hardship and risk having an issue if you are unable to lower your payments, refinancing using bad credit may not be a healthy financial decision. Instead, look into alternatives, for example, adjusting your budget temporarily until you are able to get your finances and credit back to normal. It’s also possible to exchange your vehicle for a less expensive vehicle, depending on how much it’s worth.
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Allison Martin’s writing began more than 10 years ago, as a digital content strategist, and since then she’s been published in several leading financial outlets which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to take control of their finances with clear, well-researched details that cut otherwise complicated topics into digestible pieces.
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