You can refinance your auto loan even if you have bad or poor credit. It is up to you to determine if there are better terms available for refinancing your vehicle. To help borrowers with bad credit, some auto refinance lenders may have lower credit requirements. These loans often have very high interest rates. Research […]

You can refinance your auto loan even if you have bad or poor credit. It is up to you to determine if there are better terms available for refinancing your vehicle.

To help borrowers with bad credit, some auto refinance lenders may have lower credit requirements. These loans often have very high interest rates.

Research is the only way to find out if you are eligible for a lower rate. Pre-qualification is offered by many lenders with a soft credit check. This allows you to see rates estimates without having to affect your credit score.

If a lender is unwilling to refinance at a lower rate than your current auto loan, it may be worth sticking with the existing auto loan.

Refinance your car loan if you have poor credit

A car dealer marked up your interest rate

Many consumers with poor credit quickly take out car dealership financing, even though they may have been eligible for lower interest rates elsewhere. Refinance may be an option if you have been saddled with a high-interest auto loan by a dealer.

You have improved your credit

Your credit score may have improved if you’ve been making regular, on-time payments for 6-12 months after getting your car loan. The lender should also report these payments to credit bureaus. You might be eligible to refinance at a lower interest rate.

You are having difficulty making payments

Refinancing to a longer term loan term can help you reduce your monthly car payment if it is more difficult than you thought. However, there are some downsides to borrowing more money.

Refinancing to a longer term with bad credit is less likely to result in a lower interest rate. You could also pay thousands more in interest over its life. This could still be a better choice than making late payments or facing repossession of the car you need to commute to work.

In general, Interest Rates have fallen

If market rates have fallen since your original loan, refinancing may be an option to get lower interest rates. This scenario is unlikely in today’s rising-rate environment.

Your car’s worth has increased

Cars usually lose value and depreciate quickly. In the last few years, however, cars have appreciated in value due to a shortage of vehicles. Your loan-to-value ratio will decrease if your car’s value is higher than what you owe. You may be eligible for a refinance loan if your LTV is lower, and possibly with better terms.

Refinance car loan with poor credit

It can be difficult to refinance your auto loan with poor credit. These are some tips that may help.

Review your credit score and make a report

Review your credit before you apply for an auto refinance mortgage. You can get your credit report and score for free through NerdWallet or receive a free credit report from each of the national credit reporting agencies — Equifax, Experian and TransUnion — at These agencies will offer a weekly credit report for free through December 31, 2023, thanks to Covid.

You can expect to pay higher interest rates and be subject to more scrutiny from lenders if your credit score is below 600. You might still be eligible for a lower interest rates if your credit score has improved since you received your original loan.

After you have your credit reports, check for any errors that could adversely affect your score. For example, past due payments, which were not timely. Resolve any errors and get them corrected.

It can help you determine if refinancing to a higher loan is feasible. This can give you an idea about the rates and types of loans you can expect.

Search for lenders and the lowest rate

Some auto lenders will refinance auto loans. Check with your lender first to determine if this is possible. You should still look at other lenders to find out if there are better options.

These are some questions you should ask to determine if lenders may be a good match.

What is the minimum credit score requirement for a refinance lender? Once you have checked your credit score, find lenders who will make refinance loans in the same range as your credit score. NerdWallet reviews several auto loan refinance lenders, and lists their minimum credit scores when they are available.

You can ask the lender to pre-qualify you with a soft credit review. If they do, you will be able to get refinance loan rates estimates without having to affect your credit score. To compare your current loan to pre-qualified rates and loan offers, use an auto loan refinance calculator. Pre-qualifying is free.

Is there a restriction on when you can refinance with the lender? Lenders may require you to wait six months after closing your last loan. This is especially true if you have poor credit. This waiting period allows you to demonstrate to the lender that your payments will be on time. Some lenders won’t approve a loan for an auto without having a certain amount of money or a set number of months.

What fees do lenders charge? While most lenders do not charge fees for applying for loans, some may charge you $400-500 in origination fees or processing fees once the loan is approved. Look for lenders that don’t charge high fees or those that aren’t going to cut into your savings if the fees charged by a lender are too high.

Request approval

Pre-qualification offers will help you select a few lenders to apply. You will need to provide some information such as documentation for your current loan, verification of income, and employment.

All loan applications must be submitted within 14 days of approval to avoid a hard credit inquiry. Hard credit inquiries can cause a slight drop in credit scores. However, applications received within a two-week period are usually treated as one and have less impact.

Compare rates, fees, and terms if you receive multiple refinance loan offers. A small change in your interest rate could make a huge difference in the amount you pay.

If you finance a $20,000 car for 72 months at 18% APR, your monthly payments would be $456. After one year, the loan balance has been paid down to $17,963 with a 12% APR. The remaining 60 months can be refinanced at the same 12% APR. The payment would drop from $399 to $399, which will result in an interest savings of $3.394 over the term of the loan.

If you don’t have the credit to refinance,

You may be unable to refinance an auto loan at a lower interest rate if you don’t meet the criteria.

  • You may be able to qualify if you ask a friend or relative with good credit to sign for the refinance loan. Make sure that the lender allows cosigners.

  • You can trade your car for a more affordable one and get a loan with a lower interest rate.

  • Ask your lender if they have assistance programs that can help you pay your car payments.

  • Keep your existing loan in force and continue to make regular payments for six to twelve months. This could improve your credit score and qualify you for loan approval.