How Soon Can You Refinance a Car Loan With Bad Credit?

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You can refinance a car loan with bad credit, but improved credit could mean a lower interest rate.

If you’re not happy with your existing car loan, refinancing could help you swap it out for a new one that might have a better interest rate and a lower monthly payment. But if you have a bad credit score, you might be wondering: How soon can I refinance my car loan with bad credit?

We’ll provide the answer to that question, and some tips on how to boost your credit score below. But first, let’s discuss what it means to have bad credit.

Key Takeaways

  • If your credit score has increased since taking out your original loan, you could secure a lower rate by refinancing, even if you have bad credit.
  • Your credit score is just one of many factors lenders consider when deciding whether to approve you for a refinanced auto loan.
  • You could increase your chances of qualifying and securing a lower rate by taking steps to improve your credit before refinancing.
  • Adding a cosigner who has good credit could help you receive better loan terms.
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What Is Bad Credit?

Since different lenders use different credit scoring models, the definition of “bad credit” varies. But it usually means you have negative remarks, such as a late payment or bankruptcy, listed on your credit reports.

That said, the most common credit-scoring models usually have scores that range from 300 to 850. In general, the higher your score, the better your chances of securing a lower interest rate.

Here’s a look at what’s a bad credit score, according to a widely used version of the FICO credit scoring models:

  • Exceptional: 800-850
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Bad: 300-579

If your credit score is 619 or below, you have subprime credit, according to the Consumer Financial Protection Bureau. This means you’ll likely have trouble qualifying for the best interest rates available.

Can I Refinance My Car Loan With a Subprime Credit Score?

Although having a good credit score can help you secure a better interest rate, it’s possible to qualify for refinancing with a less-than-stellar credit score. The lowest qualifying score for refinancing varies by lender.

Some lenders specialize in offering loans to borrowers who have subprime or poor credit. And not only can you qualify, but it’s also possible to receive better terms and a lower interest rate.

For instance, according to the RateGenius State of Auto Refinance Report, borrowers who refinanced their car loans with subprime credit — with credit scores between 500 to 600 — in 2021 saw an average savings of $91 a month.

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How Soon Can I Refinance My Car Loan With Bad Credit?

You can refinance your car loan as soon as you want, provided you meet a lender’s borrowing requirements. However, a better question to ask is: How long should I wait to refinance my car with bad credit?

Although there’s no minimum wait time required, waiting until your finances have improved could increase your refinancing options,and improve your chances of qualifying for more competitive rates and terms.

Here are some scenarios where it could make sense for you to refinance with bad credit:

  • Your credit score has improved: If your credit score has improved since taking out your original loan, it might be possible to qualify for a better interest rate than your current lender.
  • You’re applying with a cosigner who has good credit: Adding a cosigner who has good or excellent credit can help you qualify for a lower rate. If you find someone willing to cosign, make sure they understand they’ll be held responsible for making the loan payments if you can’t.
  • Auto loan rates have fallen: If interest rates have fallen a lot since you took out your existing loan, you might be able to snag a better rate.

What Other Factors Affect My Auto Refinance Loan Application?

When a lender reviews your auto loan refinancing application, your credit score isn’t the only factor it considers. It also reviews these factors, among others:

  • Income. Lenders review your income to assess whether you can afford to repay your new loan.
  • Loan-to-value ratio. LTV measures how much your current loan balance is in relation to the current value of your car. To calculate this ratio, divide your current loan balance by your car’s value. If your LTV ratio is greater than 125%, it can be difficult to qualify for an auto loan refinance.
  • Your vehicle’s age. The age of your car can impact whether you qualify and what interest rate you receive. For example, Some lenders only refinance vehicles that are 10 years old or younger.
  • Your current loan balance. Some lenders have minimum borrowing requirements. If your current loan balance is below a certain threshold, you might not qualify for refinancing.
  • Debt-to-income ratio. Your DTI measures what percentage of your gross monthly income goes toward your monthly debt. A high DTI can indicate to a lender that you can’t keep up with your current debt load. As a result, it can hurt your chances of qualifying.
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What Steps Can I Take To Boost My Credit Score?

If you have a low credit score, applying for loans and not getting the best rate can be stressful. But the good news is that taking some of the following steps could raise your score.

1. Pay all of your bills on time

Payment history is the most important credit scoring factor — it represents 35% of your FICO score. When you pay your credit accounts on time, it adds positive credit history to your credit reports. As a result, your credit score can increase over time.

But if you make late payments, it can cause serious damage to your credit. If you’re having trouble juggling multiple bills, you can enroll in autopay or create a bill tracking spreadsheet.

2. Keep your credit utilization ratio low

The second most important factor is your credit utilization ratio — the amount of debt you owe in comparison to your available credit. This credit factor accounts for 30% of your FICO score. Financial experts often recommend that you keep this ratio below 30%.

Paying down any revolving debt you have, such as credit card debt or personal line of credit, could improve your credit score.

3. Consider getting a secured credit card

Getting a secured credit card is another way to build credit using a credit card. This type of credit card is designed to help you build or rebuild credit. Unlike a traditional credit card, it requires a security deposit that helps establish your credit limit. If you pay your secured credit card bill on time, it can add positive payment history to your credit reports.

4. Review your credit reports

Credit reporting mistakes happen. If inaccurate negative information is reported on your credit reports it can drop your credit score. To catch any errors, review your credit reports from all three major credit bureaus — Equifax, Experian, and Transunion. You can view your reports for free weekly through Dec. 31, 2022, by visiting AnnualCreditReport.com.

If you find any errors listed on your credit reports, you can dispute them with the credit bureaus online, by mail, or by phone. You can also file a dispute with the creditor or financial institution that reported the information.

Is Refinancing My Car Loan With Bad Credit a Good Idea?

Whether or not car loan refinancing with bad credit makes sense depends on your unique financial situation. If your credit score has improved since taking out your original loan, you might be able to secure a lower interest rate. As a result, you could save thousands of dollars over the life of the loan.

But if your credit score has dropped, it’s probably best to take steps to boost your credit score before refinancing.

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About The Author


Jerry Brown

Jerry Brown is a personal finance writer based in Baton Rouge, LA. He's been writing about personal finance for three years and enjoys covering credit cards, personal loans, and mortgages. Jerry was nominated for a Plutus award for best social media for personal finance in 2020.


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