If you have bad credit, you know the struggle to obtain financing. What you may not have known, though, is that you can still refinance an auto loan with bad credit to save a lot in interest charges. Bad credit can occur for many reasons, and even a short period of having problems making your payments can lead to a lower credit score, impacting your ability to finance items and raise your interest rates.
Benefits of Refinancing Your Auto Loan When You Have Bad Credit
While it can be more challenging to refinancie your auto loan with bad credit, there are still plenty of benefits to make it worth your while:
- It can lower your monthly payment: When you refinance your current auto loan, you will either be lowering your interest rate or extending the loan period. In some cases, you will accomplish both. This will provide you with a lower monthly payment which will be easier to work into your budget,
- It can improve your credit score: While it seems strange, the only way to improve your credit is to get credit and make on-time payments. With a lower monthly payment, making your payments on time will be easier. That way, you will show new positive credit history, which can help boost your score.
- It can give you a brief break from payments: There is sometimes a 60-day delay due to paperwork processing with your first payment being due. That means the refinance company will pay off your vehicle with your lender, and you might enjoy up to a two-month break from making your monthly payments.
- You might be able to take out some extra cash: If you could use some extra cash to have on hand in the event of an emergency or pay down some other bills, you might be able to get some extra money from your loan. You can use the equity in your vehicle to cover your current loan and take out a little extra.
Steps to Refinance Your Auto Loan With Bad Credit
Refinancing your auto loan when you have bad credit is not complicated, but by following a few simple steps, you will be able to find the best option to suit your needs.
1. Download Your Free Credit Report
While it is essential to always stay on top of your credit report, it is even more crucial when you have bad credit. Credit reports will sometimes contain inaccurate or outdated information, which can result in a lower score than you should have. If you look at your report and notice there are errors, you can dispute them, and the credit reporting agencies will talk with the creditors to get the information updated and accurate.
You will also want to know your credit score to find the right lenders that will offer you refinance options. It can also help them to give you a better idea of the interest rate you will pay when shopping to find the best lender. While there are lenders that will work with all kinds 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 initially financed.
2. Contact Your Lender
Before you start shopping around, you will first want to reach out to the company currently financing your auto loan. If your account with them is in good standing, you have been on time with your payments, and your credit score has recently gone up, they may be able to offer you a refinancing option. Refinancing with your current company may eliminate extra paperwork, and you may even get a better offer if they have seen you keep up with your current loan.
3. Start Shopping
If you decide not to refinance with your current lender, it is time to begin shopping. Find some lenders that offer refinancing solutions to those with bad credit. When comparing companies side-by-side, look at their annual percentage rate and all of their fees. Their available terms may also be something you’ll want to consider.
Top Refinance Lenders for Bad Credit
While many lenders will offer to finance those with lower credit scores, a few auto loan lenders specialize in funding those with poor credit. Below are some top companies that handle these types of refinancing needs.
1. Honest Car Payment
Honest Car Payment is an online auto finance company that can help you with any type of car refinance. They specialize in traditional auto loan refinancing, auto lease buyouts, and cashback refinancing. Bad credit is no problem, and if you have had a slight increase in your score since your first finance, they can save you money and lower your monthly payment.
2. Auto Credit Express
Unlike some refinance companies, Auto Credit Express does not provide financing, but instead connects users with a network of lenders that provide funding to people with bad or repaired credit. You will be connected with companies based on your credit score and the amount of equity in your vehicle.
Another company that can connect you with multiple lenders is Tresl. They will take in some initial information and let you know which lenders have pre-qualified you and what rates they have to offer. It is important to note that prequalification does not guarantee your rate, and it may change once all the paperwork is submitted.
4. New Roads
Refinancing can be even more difficult if you have had a bankruptcy or vehicle repossession. New Roads is a lending company willing to take a chance on borrowers who have had significant credit issues in the past as long as they have shown good payment history on their current auto loan.
Refinancing an auto loan with bad credit is possible and can help you save money on interest, reduce your monthly car payment, or both. If you are struggling with your current car payment but have not improved credit scores, you may consider a co-signer 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 utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.