Can You Refinance Your Auto Loan with Bad Credit?

Refinance your auto with bad CreditMany consumers with bad credit end up wanting to refinance their auto loans down the road. Most people are not sure what resources are available for them.

Fortunately, many auto loan companies are more than willing to take on customers with bad credit. What you will want to keep in mind is that certain factors will improve your ability to get a loan refinance, as well as improving the terms you will receive.

Reduce Your Monthly Payments

The main reason most people want to refinance is to lower their monthly payment. A low payment can help you stay afloat and avoid defaulting. A lower payment generally means more compounded interest and an overall larger amount spent on the loan.

Make Payments on Time

Make an effort to pay off your monthly statement for your existing auto loan. Making payments on time helps increase your credit score and demonstrates financial responsibility to a lender. They can review your record and see that despite your credit score, you have begun to take part in financially responsible behavior.

If you default on payments, you may have difficulty refinancing. The lender will see this action as a risk, made worse by your unfavorable credit score. If you do manage to secure a refinance loan after defaulting on your old one, you may face harsh penalties and fees.

Interest Rate Adjustments

Your interest rate may change depending on the lender you choose, your current financial situation and the economic climate. If you have been paying your existing loan on time and have demonstrated responsibility, you may see a small reduction on your interest rate. National interest rates may also have lowered, allowing for a more favorable interest rate upon refinancing.

On the other hand, if your credit has gotten worse since your last loan and you have had trouble making payments, your interest rate could see a slight gain. You also may see a higher interest rate in exchange for an abnormally small monthly payment.

Your Car’s Condition

Another factor in refinancing is the overall state of your car. While refinancing lenders will not appraise your vehicle, they want to make sure your new loan is not covering a bad asset. In other words, your vehicle has to have a certain amount of value for them to be interested in giving you a loan.

Here are some common conditional factors; these will vary depending on the lender.

  • The vehicle was manufactured within the last 5-10 years
  • The vehicle has less than 50,000 miles on the odometer
  • The initial value is not significantly lower than the balance on your current auto loan

Other conditions may require someone with a set income level, usually higher than $2,000 a month.

A Helping Hand

No matter what your situation, you can eventually find someone who will be willing to help you refinance. Getting more favorable terms on your auto loan will free up your credit and set you on a path towards building even better credit into the future.

Posted in: RefiPayment News

Leave a Comment (0) ↓

Leave a Comment