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Can I refinance my car loan with 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 goal is to help you make better financial decisions by offering you interactive financial calculators and tools that provide objective and original content. We also allow users to conduct studies and compare data for no cost and help you make informed financial decisions. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that pay us. This compensation could affect how and where products appear on this site, including the order in which they be listed within the categories of listing, except where prohibited by law for our mortgage or home equity products, as well as other products for home loans. But this compensation does not influence the information we provide, or the reviews you see on this site. We do not cover the universe of companies or financial offers that may be accessible to you. PeopleImages/Getty Images
4 min read Published January 13, 2023
Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital content strategist. She’s been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with concise, well-researched and reliable information that breaks down complicated subjects into bite-sized pieces. The Bankrate promises
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While yes, you can refinance the car loan even with bad credit it can put you in a difficult financial situation, so it’s best to first consider alternatives like the possibility of requesting loan modification or selling your car.
The reason you shouldn’t refinance an auto loan that has bad credit Lenders start a new loan term once you . In reality, you may obtain a less expensive monthly installment. But there’s a catch: Unless your credit score has improved since you took the initial loan but you’re not likely to get a better interest rate. And, even more importantly, you might be paying more over the course of the loan due to the fact that the lender will have more time to take interest from you. If you’re looking to reduce your monthly payment, this can work. If not, extending your loan duration without getting the lowest interest rate could result in paying more than your car is worth. It’s also important to know if your current lender charges prepayment penalties. If so, the drawbacks of refinancing your auto loan could outweigh the benefits of having a lower monthly installment. How do you refinance a car loan that has bad credit If you already have a and have decreased in value since purchasing your car, or you absolutely need to lower your monthly payments Refinancing might be a good idea. And just like shopping for a new or used car, the refinancing process involves a lot of investigation. Check your credit Review your credit score and report to stay clear of any unpleasant surprises before looking for an additional loan. If you find any incorrect or outdated information, you should file a dispute promptly to the bureaus that handle credit — Experian, TransUnion or Equifax reporting the wrong information. You are able to request a copy your credit report free of charge using . Explore your options You can inquire with your current lender about refinancing options that may be offered to you. Consider banks or credit unions that you have a relationship with. And — like Caribou, RefiJet and Ally that are geared towards those with less-than-perfect credit could also be an option. If you are a lender you can be able to review your rate without affecting the score of your credit. Bankrate Tip
When shopping , pay attention to conditions for approval and repayment options particularly in relation to your car’s age and mileage.
Apply for a new loan Before you submit the loan application, gather any documents the lender needs to speed up the process of review. They will typically require evidence of your income, residency , and other information regarding your current loan. Additionally, you will need to provide your mileage in addition to the make, model, and vehicle identification number for your car. When applying, you must be sure to fill in the correct information on the application forms to avoid discrepancies that can cause a rejection or rejection of the application. The lender will verify the information you supply. Close the loan Examine and review the loan documents to ensure the terms and conditions work for you. If they do, then sign on the dotted line in order to close the transaction. The money will be sent directly to your current lender as well as to your current lender to allow you to pay the initial loan off. Bankrate Tip
Contact your lender to determine when you begin making payments. From here, you’ll follow the new monthly payment schedule until you pay off your refinanced loan.
How to boost your credit prior to refinancing it is in your best interest to increase your credit score prior refinancing your car loan. The best interest rates are usually reserved for borrowers with good or excellent creditscores. a higher credit score could mean the difference between getting a . Here are some tips to : Pay all your bills in time. Get current on any past-due debts. Reduce the amount of your credit card balance at 30 percent, or less than the credit limit. Don’t close old credit accounts. Only apply for credit when you need to. You should also keep track of your credit score to keep track of your improvement. Certain credit cards or lenders offer free credit checks on your monthly statement. Otherwise, you may need to check frequently or making payments to check your score. Alternatives to refinancing your car loan refinancing There’s a variety of options available in the event that you analyze the data and decide that refinancing your vehicle loan isn’t a smart financial move. Sell it. Based on the value of your vehicle is worth and what is due to the loan and the amount of your loan, you may be able to trade it in for a more affordable alternative and then roll the outstanding balance into a new loan. Request a modification. Since most lenders do not refinance their own loans so you can ask for this in the form of . This lets you adjust the terms of your payment — and even interest rates- without having to go through a new application process. Defer payments. This is only available if you’re in a financial crisis that is short-term, but it is an alternative. You may be able to cut off up to 3 months of payments. But, they’ll be added on to the end of your loan and you will still being charged interest. Change your budget. If you are , consider adjusting your budget to make your payments easier to afford until you qualify to refinance. It is also advisable to improve your credit score in the meantime to get an improved interest rate when you apply for the next loan. If you’re experiencing financial hardship and are at risk of having to pay a penalty if you can’t lower the payments, refinancing on bad credit may not be a healthy financial decision. Instead, consider alternatives such as adjusting your spending plan for a short period until you can are able to get your finances and credit back to normal. It’s also possible to trade your car in for a more affordable ride depending on the value it’s worth.
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Written by Allison Martin’s work started over 10 years ago as a digital content strategist, and she’s since been published in various top financial media such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to manage their finances through providing precise, well-researched and well-researched facts that break down otherwise complicated topics into digestible pieces.
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