Refinancing Auto Loan With Bad Credit: Everything You Need to Know 

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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.

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Can I Refinance My Car Loan if I 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.

What is bad credit?

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.

What is the minimum credit score to refinance a car loan?

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.

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When Should I Refinance My Auto Loan if I Have Bad Credit?

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:

  • You’ve increased your credit score: Even if your credit score is still less than ideal, an improvement of any kind could help you tap into a better interest rate. If you’ve made on-time payments to your existing car loan, that might give your credit score just the boost you need.
  • You got stuck with an overly high interest rate: Unfortunately, it’s not uncommon for dealerships to mark up the interest rate on your loan. If you have a predatory auto loan, it’s usually possible to access better financing options through a credit union or online lender.
  • You need a lower payment: If you are struggling to keep up with your current auto loan payment, refinancing could give your budget the wiggle room you need. Even if you can’t get a better rate, you can opt for a longer loan term, which means lower monthly payments.
  • Your car’s value is still high: A car’s value has a big impact on your refinancing opportunities. If your current car loan is upside down, that makes it more challenging to get a refinance.
  • Interest rates have fallen: Market conditions can cause interest rates to drop across the board. If interest rates have fallen, you could tap into a better rate without a better credit score. But if market rates have gone up, it’s less likely you’ll find a better interest rate.

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.

What are the benefits of refinancing my car with bad credit?

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.

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What’s the Best Way to Get a Car Loan With Bad Credit?

Shopping for a car loan with bad credit? Here are the steps you should take to find the best refinancing options.

Check your credit

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.

Ask your current lender

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.

Shop around for the best deal

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.

What rate can I get? What rate can I get?

What if I’m Not Approved for a Car Loan Refinance?

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:

  • Check your credit reports for errors: You can review all three credit reports for errors in your credit history. If you spot an error, disputing it with the credit bureau can have it removed from your report. Depending on the situation, removing errors will have a positive impact on your credit score. AnnualCreditReport.com offers free access to your credit reports.
  • Prioritize on-time payments: Payment history accounts for 35% of your FICO score, so on-time payments are critical for a good credit score.
  • Pay down revolving account balances: The balances owed on your revolving account balances create your credit utilization ratio. For example, if you have a $2,000 balance on a credit card with a $10,000 credit limit, then you have a credit utilization rate of 20%. Your credit utilization rate is important because it accounts for 30% of your FICO score. A lower rate can have a positive impact on your credit score.

It can take a few months for your credit score to update, so be patient during this process.

Bolster your loan application

Other than improving bad credit, you can use these simple tactics to boost your loan application:

  • Seek out a co-signer: Many lenders allow co-signers. If you have a friend or family member with good credit who is willing to vouch for your ability to repay the loan, they can act as a co-signer.
  • Lower your debt-to-income ratio (DTI): Your DTI will impact your refinance application. Essentially, it measures your monthly debt obligations compared to your monthly income. A higher DTI means more of your income is used to pay debts each month. Lenders usually prefer a lower DTI on the idea that your income can support this new loan payment. Not sure what your DTI is? Find out with our free calculator. 

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.

Refinancing Your Auto Loan With Bad Credit Is Possible

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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About The Author


Sarah Sharkey

Sarah Sharkey is a personal finance writer who loves diving into the details to help readers make savvy financial choices. She has written for numerous finance publications, including Business Insider, Smart Asset, and Money Under 30. She lives in Florida, with her husband and dogs, and enjoys exploring a new stretch of coastline whenever she can.


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