Having bad credit is a really common problem. You are not alone! Even with poor credit, it’s possible to refinance your car loan for a lower interest rate or better terms. Refinancing an auto loan replaces your existing loan with a new one that will hopefully save you money. Although there are no guarantees, you may be able to refinance your car loan with bad credit.
The truth is, a new loan could actually make your car payment more affordable and help you get on the path to improving your credit. Whatever the reasons for your credit score, the most important thing is to know your options, and CarRefinance.com is here to help you find the answers.
If your refinance goal is to get a lower monthly payment (versus a lower rate), you may need to extend your loan term. Be aware that a longer term could increase the total amount of interest you pay over the length of your loan.
If you want to refinance your car loan and have bad credit, taking the time to do some homework could pay off. Checking your credit and disputing any errors.
Our credit score determines your auto refinance rate — in general, the higher the score, the better the rate. If your credit score has increased since you got your original loan, you may qualify for a lower interest rate. If it’s lower than you thought, check your credit report at annualcreditreport.com to make sure there aren’t any errors that could be dragging it down.
Auto lenders use different credit scoring models, but credit bureau Experian breaks down scores this way:
740-799: Very Good
300-579: Very poor
Those with a credit score of 660 or higher receive the best new-car auto loan rates, 6.64% or better, on average.
How to Improve Your Credit Scores
To improve your credit scores, focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:
- Make at least your minimum payment and make all debt payments on time. Even a single late payment can hurt your credit scores and it’ll stay on your credit report for up to seven years. If you think you may miss a payment, reach out to your creditors as quickly as possible to see if they can work with you or offer hardship options.
- Keep your credit card balances low. Your credit utilization rate is an important scoring factor that compares the current balance and credit limit of revolving accounts such as credit cards. Having a low credit utilization rate can help your credit scores. Those with excellent credit scores tend to have an overall utilization rate in the single digits.
- Open accounts that will be reported to the credit bureaus. If you have few credit accounts, make sure those you do open will be added to your credit report. These could be installment accounts, such as student, auto, home or personal loans, or revolving accounts, such as credit cards and lines of credit.
- Only apply for credit when you need it. Applying for a new account can lead to a hard inquiry, which may hurt your credit scores a little. The impact is often minimal, but applying for many different types of loans or credit cards during a short period could lead to a larger score drop.
If you’re struggling to get qualified for auto refinancing, you may want to consider asking a friend or family member to be your co-signer. A co-signer with good credit may give you a better chance of getting approved or help you get a better loan rate and terms.
Helping people like you refinance their auto loans is our specialty. We work with many different lenders and banks, and know how to find options that might work better for you, and will guide you through the whole process quickly and efficiently. Submit your information and let us help you.