Can I refinance a vehicle loan when I have bad credit? Part Of Refinancing a Car Loan In this series Refinancing a Car Loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by offering you interactive financial calculators and tools that provide objective and original content. This allows users to conduct research and compare information for free - so that you can make financial decisions with confidence. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation could affect how and where products appear on this website, for example for instance, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law for our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the content we publish or the reviews that you read on this site. We do not include the vast array of companies or financial deals that could be accessible to you. PeopleImages/Getty Images
4 minutes read. Published 13 January 2023
Written by Allison Martin Allison Martin Written by Allison Martin's work started over 10 years ago as a digital media strategist. She's been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Editor: Auto loans Editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex subjects into bite-sized pieces. The Bankrate guarantee
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If you do refinance a car loan with bad credit it can put you in a financial precarious position, which is why it's advisable to first consider alternatives like requesting loan modification or trading in your car.
There are many reasons to not refinance an auto loan with bad credit Lenders start a new loan period when you . In reality, you may obtain a less expensive monthly payment. However, there's one caveat that if your credit score has improved since you took out the original loan and you've improved it, you're unlikely to be able to get a better rate of interest. Even worse, you could pay more over the life of the loan due to the fact that the lender has more time to take interest from you. If you want to reduce the monthly amount you pay it is possible to do this. If not, extending your loan duration without getting a lower interest rate may mean paying far more than what your car is worth. It's equally crucial to find out whether your current lender is penalized for prepayment. If it does, the disadvantages of refinancing your auto loan could outweigh the benefits of a lower monthly payment. How to refinance the car loan that has bad credit If you already have a credit score that has decreased in value since purchasing your car or you are in need of an easier payment, refinancing could be worthwhile. Just like buying an used or new car refinancing requires lots of study. Make sure you review your credit score and report to stay clear of any unpleasant surprises prior to searching for an additional loan. If you notice any inaccurate or out-of-date data, make a complaint immediately with the credit bureaus-- Experian, TransUnion or Equifax -- reporting the incorrect information. You can request a copy your credit report free of charge by contacting . Explore your options inquire with your current lender about refinancing possibilities that might be available to you. Consider banks or credit unions you are currently doing business with. And -- like Caribou, RefiJet and Ally which cater to those with less-than-perfect credit might be a viable alternative. Depending on the lender, you may be able check your rate without affecting the score of your credit. Bankrate Tip
When you shop, pay at the your options for repayment and the requirements for approval particularly for the age of your vehicle and mileage.
Apply for a new loan Prior to submitting an loan application, you must gather all documents the lender requires to expedite the review process. The majority of lenders will require documents proving your the income, residency and details regarding your current loan. Additionally, you will need to supply the amount of miles in addition to the make, model, and vehicle identification number for your vehicle. When applying, you must ensure that you fill out the form correctly to avoid any ambiguities that could cause a rejection to your request. The lender will confirm the information you provide. Close the loan Examine and review the loan documents to make sure the terms and conditions are in place for you. If they do, then sign on the dotted line to complete the loan. The funds will either be sent straight to the current lender and/or to you so that you can pay the initial loan off. Bankrate Tip
Make sure to contact your lender to find out the date you will begin making payments. From here, you will adhere to the new monthly installment schedule until the time you are able to pay off the loan. loan.
How to improve your credit prior to refinancing it's best interest for you to boost your credit score before refinancing your vehicle loan. The most competitive interest rates are generally reserved for borrowers with good or excellent credit, and having a better credit score could make the difference between getting a . Here are some practical ways to pay all your bills promptly. Get current on any past-due debts. Reduce the amounts on your credit cards to 30 percent or less of the credit limit. Don't close old credit accounts. Only apply for credit as needed. Also, you should monitor your credit score to keep track of your progress. Certain credit cards or lenders will provide free credit reports with your monthly statements. In other cases, you might have to make sure you check them infrequently or paying to check your score. Alternatives to car loan refinancing Other options are when you look at the numbers and decide refinancing your vehicle loan isn't a smart choice for you financially. You can trade it in. Depending on what the car is worth and the amount that is owed for the loan and the amount of your loan, you may be able to trade it into a less expensive alternative and then roll the outstanding balance into a new loan. Request a modification. Since most lenders do not refinance their own loans You can apply for this type of . This lets you adjust payment terms -- and sometimes interest rates -without having to go through a fresh application process. It is possible to defer payments. This is only available if you're in a financial crisis that is short-term however, it's an alternative. You can cut off up to 3 months of payments. However, they'll be tacked on to the end to your loan and you'll be accruing interest. Make adjustments to your budget. If you are , consider adjusting your budget so that your monthly payments are more affordable until you qualify for a refinance. It is also advisable to improve your credit score the meantime in order to secure an improved interest rate in the event of applying for the next loan. The bottom line Unless you're facing financial difficulties and you are in danger of being forced to take out a loan problems if you don't reduce the payments, refinancing on bad credit may not be a healthy financial decision. Instead, explore alternatives, like adjusting your spending plan temporarily until you get your finances and credit back on track. You may also be able to exchange your vehicle for a less expensive vehicle depending on the value it's worth.
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Allison Martin's writing began over 10 years ago when she was an online content strategist and she's since been featured in several leading financial outlets which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing clear, well-researched facts that break down complex topics into manageable bites.
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