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You can refinance a car loan with bad credit. But you might miss out on the best interest rates.
If your existing auto loan payment is putting a strain on your budget, refinancing could be the solution you’ve been searching for. A refinance can help you lock in a lower monthly payment.
Refinancing might be a budget-saving option even if you have a bad credit score. Let’s explore your options for auto loan refinancing when you have bad credit.
If you have bad credit, refinancing your car loan may still be possible. But whether or not you are approved comes down to the lender’s judgment on your unique situation.
Even if you are approved for a refinance with bad credit, it might be challenging to lock in a lower interest rate if your credit score hasn’t changed since you finalized your existing auto loan. As a general rule, a lower credit score leads to higher interest rates.
The term “bad credit” can be a bit subjective. Credit scores vary across the three credit bureaus, plus there are different types of credit scores depending on the industry that is checking credit.
Bad credit scores are often shaped by late payments, high account balances, or unpaid accounts in collections. But the Consumer Financial Protection Bureau classifies credit scores of 620 or lower as subprime, which is an industry term for bad.
While no one wants to hear this answer, there isn’t a specific minimum credit score to refinance a car loan. Every lender has different credit requirements, and they generally look at your whole credit profile, not just your credit score.
It’s hard to pinpoint a minimum credit score, especially considering how broad the ranges are.
Refinancing makes the most sense for borrowers that can access a lower interest rate or need a lower monthly payment to fit their budget.
Here’s when a refinance might be the right move for your finances:
Refinancing an auto loan isn’t the right move for everyone. But if your circumstances reflect one of the reasons above, this money move could be a good choice.
Refinancing your car loan can help you wrangle your finances to suit your budget. If you want to save money over the course of your loan, a new loan with a lower interest rate can give you that opportunity.
But there are other reasons to consider auto refinance loans. Even with poor credit, you might be able to find a longer loan term than the original loan. The ability to stretch the same loan amount out means you can lower your monthly car payments.
Shopping for a car loan with bad credit? Here are the steps you should take to find the best refinancing options.
Start by checking your credit score. A quick check lets you know where you stand.
In the best-case scenario, your credit score may have increased since your last check. But even if you don’t see improvement, it’s good to know where your credit score sits before you start shopping for a loan.
Some lenders offer the opportunity to refinance directly with them. It’s possible to get a better rate simply by asking. But a lender will be more likely to honor your request if your credit score has improved or you have a history of making your payments on time.
If your current lender says no to a lower rate, then it’s time to start shopping for a new lender.
Different lenders to consider include banks, credit unions, online lenders, and other financial institutions. You can also use a marketplace to find the best rate for your loan.
As you look at different loan offers, a big consideration is the annual percentage rate (APR) available. But you’ll also want to consider how much you’ll pay in interest over the life of the loan. Plus, it’s important to watch out for sneaky fees like prepayment penalties.
With a low credit score, you likely won’t get the best rate on the market. But you could still walk away with a new auto loan that’s a better fit for your finances.
If you don’t receive approval the first time you try to refinance your car, don’t fret. You can apply for multiple refinancing offers at one time. Credit inquiries that are completed within a 30 day period of time will act as one inquiry.
There are also a few things you can do to improve your chances on the next application. Let’s explore your options.
Improve your credit score.
The first option is to work on your credit score. A few strategies for credit score improvement include:
It can take a few months for your credit score to update, so be patient during this process.
Other than improving bad credit, you can use these simple tactics to boost your loan application:
It’s important to remember one thing about reapplying to refinance your vehicle: These tactics to improve your credit portfolio or income situation take time. So, it’s a good idea to tackle multiple strategies at once. While you’re working on your credit score, you can try to reduce your current loan balance. This will help improve both your debt-to-income ratio and your loan-to-value ratio.
Before you begin your search, it’s a good idea to figure out how much money you need to save for a refinance to be worth your time.
The good news is that you can refinance a car loan with bad credit. Additionally, you can improve your chances of getting approved the first time you apply if you use the right approach. While it is likely going to take a little more research and effort, you can find auto loan refinancing offers that might save you money or improve your customer experience.
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