Refinancing Car Loan Bad Credit – If you have bad credit, you know how difficult it is to get financing. What you may not know is that you can still refinance your bad car loan to save a lot on interest. Bad credit can occur for many reasons, and even a short period of payment problems can lead to a lower credit score, affecting your ability to finance items and increasing your interest rates.
While it can be more challenging to refinance your car loan with bad credit, there are still many benefits that will make the effort worthwhile:
Refinancing Car Loan Bad Credit
Refinancing a car loan when you have bad credit is not complicated, but by following a few simple steps, you can find the best option that suits your needs.
Pros And Cons Of Refinancing A Car Loan
While it’s important to always stay on top of your credit report, it’s even more important when you have bad credit. Credit reports sometimes contain inaccurate or outdated information, which can result in a lower score than it should. If you look at your report and see errors, you can dispute them and the credit reporting agencies will talk to creditors to get the most up-to-date and accurate information.
You’ll also want to know your credit score in order to find the right lenders to offer you refinancing options. It can also help them get a better idea of the interest rate you’ll be paying when they shop around to find the best lender. While there are lenders that will work with all types of credit scores, if your ultimate goal is to lower your interest rate, you will need to have a higher credit score than when you originally financed.
Before you start shopping, you’ll first want to contact the company that currently finances your auto loan. If your account with them is in good standing, you’re current on your payments, and your credit score has recently increased, they may offer you a refinance option. Refinancing with your current company can eliminate the extra paperwork, and you might even get a better deal if they see you’re up to date with your current credit.
If you decide not to refinance with your current lender, it’s time to start shopping around. Find some lenders that offer refinancing solutions for those with bad credit. When comparing companies side-by-side, look at their annual fee and all of their fees. Available terms may also be something you should consider.
How Soon Can You Refinance A Car Loan With Bad Credit?
While many lenders offer financing to those with lower credit scores, some auto lenders specialize in financing those with bad credit. Below are some of the best companies that handle these types of refinancing needs.
Honest Car Payment is an online car finance company that can help you with any type of car refinance. They specialize in traditional auto loan refinancing, car lease purchases, and payoff refinancing. Bad credit isn’t a problem, and if you’ve had a slight boost in your score since your first loan, they can save you money and lower your monthly payment.
Unlike some refinance companies, Auto Credit Express does not provide financing, but instead connects users with a network of lenders that provide financing for people with bad or repaired credit. You will be matched with companies based on your credit score and the value of the equity in your vehicle.
Another company that can connect you with multiple lenders is Tresl. They will get some initial information and let you know which lenders have pre-qualified you and what rates they are offering. It’s important to note that prequalification does not guarantee your rate and may change once all documentation is submitted.
Refinancing A Car Loan With Bad Credit
Refinancing can be even more difficult if you have a bankruptcy or repossessed vehicle. New Roads is a loan company that is willing to take a chance on borrowers who have had significant credit problems in the past, provided they have demonstrated a good repayment history on their current auto loan.
Bad credit car loan refinancing is possible and can help you save money on interest, lower your monthly car payment, or both. If you’re struggling with your current car payment, but your credit score hasn’t improved, consider a cosigner with good credit. Having a co-signer can help you get a lower rate and better monthly payment, which can help you get your finances back on track.
At FIXD, our mission is to make car ownership as simple, easy and affordable as possible. Our research team uses the latest automotive data and insights to create tools and resources that help drivers stay calm and save money over the life of their car.
We’re here to help you simplify car care and save money, so this post may contain affiliate links to help you do just that. If you click on a link and take an action, we may earn a commission. However, the analyzes and opinions presented are our own. Favorable car refinancing terms are often extended to borrowers with good credit. Bad credit borrowers need to “shop around” carefully to secure decent refinancing rates. If decent rates are extended, auto loan refinancing can save the borrower thousands of dollars. But borrowers with bad credit must carefully understand the terms offered or the overall savings potential could be minimal.
Can I Refinance A Car Loan With Bad Credit?
Refinancing your car loan can save you thousands of dollars. A good credit score will help you get a better interest rate. But there are ways to save money by refinancing your car, even if you have bad credit. This article looks at auto loan refinancing, what the pros and cons are, when it’s a good idea, how to do it, and how your credit history will affect the terms you’ll be able to get for a new loan.
Think of refinancing your car loan as exchanging your old car loan for a new and better car loan. You still have the same car, but you get a lower interest rate, lower monthly payments, or both. When you refinance your car loan, the old loan is paid off with the new loan. You will no longer pay monthly payments on the old loan. You will pay the new loan.
When deciding whether or not to refinance, you need to weigh the benefits and costs. If you can get a new loan with better payment terms, it can make a big difference to your cash flow and your overall borrowing costs. Consider example 1 below:
In Example 1, you have a loan of $20,000 for 5 years (60 months) with an interest rate of 20%. You refinance this loan after two years at 12% for the remaining amount of $14,257.98. This reduces your monthly payment from $529.88 per month to $473.57 per month. This represents a monthly savings of $56.31. The total interest you will pay on the remaining loan will be reduced from $4,817.61 to $2,790.52. This means you will save $2,027.09 in interest on the remaining loan.
How Long Should I Wait To Refinance My Car?
In example 2, you have the same original loan as in example 1. However, the interest rate on the new loan is only 2% lower and the repayment term is extended from the remaining three years to five years. Because of the longer term, the monthly payment is reduced even more than in example 1. The monthly payment is $167.82 less than the old loan. But a longer term also means more time to accrue interest. This means that your remaining interest will be higher, even if the interest rate is two points lower. You’ll end up paying $2647.95 more in interest over the long term with lower monthly payments.
While these refinancing examples illustrate how the interest rate and loan term affect the amount you’ll pay on a loan, there are other issues to consider, including:
Consider Example 3, where there is a 2% prepayment fee on the new loan and a prepayment penalty equal to 5% of the remaining balance of the old loan. Everything else is the same as in example 1.
As you can see, prepayment penalties and approval fees cut more than half of your savings on your monthly payment compared to Example 1. Although there is only a small addition to the total interest on the new loan due to these fees.
Can You Refinance A Car Loan With Bad Credit?
It’s not a good time to refinance your car loan if you can’t get favorable terms that outweigh any additional fees you may have to pay. These fees may be prepayment penalties, origination fees, or other fees. Also keep in mind that if you refinance with a new, longer-term loan, you increase the chances that at some point your car will be worth less than what you owe. If your car is already worth less than what you owe on the loan, it’s not a good idea to refinance. The same is true if you fall behind on your current car loan payments.
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