Most people with bad credit immediately give up on the idea of refinancing an auto loan for better terms. However, even with bad credit, some lenders may be willing to give you a loan.
The first step is to have realistic expectations about your loan prospects. You must accept the fact that you may not receive the best loan terms available for auto refinance. Still, given the low-interest-rate environment, you may be able to secure one with decent terms.
Is It Possible to Save Any Money?
Refinancing aims to save money but whether you will be able to do that or not depends on your credit score and current loan terms. If your current interest rate is high, you may be able to get better terms. Consequently, an improved score will allow you to save money on your auto refinance loan terms. Another credible way to know if you will be able to save money is by obtaining quotes. With that in hand, you can decide to move forward if there is a possibility to save.
The Process to Refinance a Car With Bad Credit Score
- Take a look at your current auto loan and see if there’s any prepayment penalty. In case there is, pay it off to finalize refinancing.
- Contact your lender once you fully understand the true cost of your current loan.
- Consider other options even if your current lender is willing to offer you an auto refinance
- Carefully consider the loan terms and interest rate and see any additional fees in the total loan cost.
- As a final step, once you have landed an opportunity, get the paperwork done. The paperwork usually involves verification of your identity, income, and creditworthiness.
How to Improve Your Credit Score
Having a good credit score is the only way to land you good terms on an auto refinance loan. Here are a few ways to improve your credit score.
Never delay your bill payment
Pay your bills on time as your payment history has a big portion of your credit score.
Consider getting a credit builder loan
Through this loan, the lender will put the loan amount in a secure bank account. As you make monthly installment payments, the bank will inform the credit bureau, and you will get your full loan amount at the end of the term. Credit builder loans are specifically designed to make your credit score better.
Pay off existing debt
If there’s any debt you’re currently dealing with, pay it off immediately. The first step is to take debt repayment seriously and have your mindset on it. After that, it is important to remain consistent while paying the debt down.
While a bad credit score may also give you opportunities for an auto refinance loan, it is better to improve it to land better loan terms.