A high-interest rate can create thousands of dollars in interest payments over the course of your loan. But what if you could refinance your auto loan to take advantage of a lower interest rate? You could potentially save yourself thousands of dollars!
If you are concerned that your bad credit score could prevent you from taking advantage of a lower interest rate, then keep reading. It might be possible for you to refinance a car with bad credit. Let’s take a closer look at your car refinancing options with bad credit.
Can you refinance a car with bad credit?
If you have bad credit, then you might immediately disregard the idea of refinancing for better loan terms. However, some lenders will be willing to work with you even if you have bad credit.
As you start the process of refinancing your auto loan with bad credit, set some realistic expectations about your loan prospects. Although you may be able to refinance with certain lenders, you will likely not secure the best loan terms available on the market. In fact, you should expect to receive loan offers with less favorable loan terms if you have a bad credit score. Extremely attractive loan offers are typically reserved for borrowers with a great credit score.
But even with realistic expectations in mind, you may still stand to gain from refinancing your car. Given the low-interest rate environment, you might be surprised at the loan terms that you can secure.
Will you be able to save any money?
The goal of refinancing your auto loan is to save money on your payments. After all, there is no need to run through the paperwork process of refinancing unless you are able to save on the cost of your loan. The answer to whether or not you’ll be able to save any money will depend on your credit score and current loan terms. If you have a high-interest rate on your existing auto loan, then it may be possible to find better terms.
Additionally, you may be able to save money on your loan terms if your credit score has improved. Although you may have bad credit, it is possible that your credit score has improved over the course of your current loan repayment plan. This is a likely outcome if you’ve been making on-time loan payments.
The best way to find out if you’ll be able to save money through refinancing is by obtaining quotes. Once you have a few quotes in hand, you’ll be able to determine if there is an opportunity to save. With that, you can choose to move forward with refinancing only if you stand to save.
What is the process to refinance a car with bad credit?
The first step of refinancing your current auto loan is to take a closer look at your current loan. Make sure that you understand the full cost of your loan. Also, make sure that there is no prepayment penalty tucked into your loan terms. If you will need to pay an early payment penalty to finalize refinancing, then you’ll need to factor that into your decision.
Once you have a better understanding of the true cost of your current loan, contact your lender. If you have been making on-time payments and improved your credit score, then your current lender may be willing to offer you better loan terms. It never hurts to ask the question!
Even if your current lender is willing to offer you a refinancing deal, you should still shop around. Take some time to seek out quotes from other lenders. As you receive quotes, compare the terms across the board. Importantly, you should consider the interest rate and loan term. But also look beyond those factors to consider any fees that would add to the total cost of your loan.
After you’ve found an attractive refinancing opportunity, then take action. Moving through the refinancing process will be very similar to your original financing process. As you get started, make sure to amass the paperwork you’ll need to verify your income, identity, and creditworthiness.
What can you do to improve your score?
You may be able to save money by refinancing your auto loan with bad credit. But if you have a good credit score, you’ll be able to secure attractive refinancing opportunities more easily. With that, it is important to consider improving your credit score before starting the refinancing process. Here are my top tips to improve your credit score:
Pay bills on time
A surefire way to improve your credit score is to make on-time loan payments every month. That’s because your payment history comprises a large portion of your credit score.
Although making on-time payments can be easier said than done, it could make a big impact on your credit score. In order to make it easier to stick to your payment schedule, consider setting up an automatic payment.
With automatic payments, you’ll never miss a payment again!
Consider credit builder loan
A credit builder loan is specifically designed to help you build your credit score. When you are struggling to find a lender that is willing to work with your bad credit score, a credit builder loan can be a great option.
With a credit builder loan, the lender will deposit the loan amount into a secure bank account. Over the course of the loan, you’ll make monthly installment payments which will be reported to the credit bureaus. If you’ve made your payments, you’ll receive the loan amount in full at the end of the loan term.
If you want to make active strides towards better credit, then a credit builder loan could be a good option.
Pay off existing debt
If you are in debt, then paying off your debt could lead to a better credit score. When you eliminate an existing debt from your credit report, you may see an increase in your credit score. Making the decision to get serious about debt repayment is a great first step. But it is important to take consistent action while paying down debt.
Consider the snowball and avalanche methods as potential strategies to free you from the cycle of debt. Once you get out from under your current debt obligations, your improved credit score will allow for better refinancing opportunities.
If you are working towards building a better credit score, I highly encourage you to take advantage of our free credit resources.
Is it a good idea to refinance a car with bad credit?
Refinancing your auto loan could be a good idea if you are able to secure better loan terms. With better loan terms, you could potentially save thousands on interest rate payments. However, you should not move forward with refinancing your car loan if you are unable to secure better loan terms.
As you pursue auto loan refinancing, make sure to shop around. You might be surprised at your savings opportunities with the right lender! Even if you want to refinance a car with bad credit, there may be options available for you.
If you would like to save even more money through refinancing, then building your credit score is a good idea. With better credit, you can secure more attractive loan opportunities. Not only would that impact your refinancing opportunities, but also your future loan opportunities.