Here at Auto Credit Express, we get asked questions about car refinancing and eligibility with bad credit. Recently, a consumer asked us this:
“My credit score is over 600. However, I would like to know if I apply for refinancing will a lender run my credit?”
The simple answer is yes, a lender is going to run your credit when you apply to refinance an auto loan. However, your credit score is just one piece of the puzzle that lenders look at in order to qualify you for refinancing.
Auto Refinancing Requirements
Refinancing is when you replace your current loan with a new one – hopefully one with better terms. Refinancing can be great if you originally took out a bad credit car loan with a higher than average interest rate. It gives you the chance to qualify for a better interest rate. This lowers your monthly payment and the overall cost of your loan.
To be eligible to refinance an auto loan, you have to be able to meet a lender's requirements. To start, you need to have good credit in order to qualify, or at least a credit score that has improved since you took out the original loan.
Your car also has to meet the new lender's age and mileage requirements. Along the same lines, your loan amount has to fall within the new lender's acceptable range. Each lender is going to have their own guidelines, so make sure to ask about them before applying.
Two other refinancing requirements to keep in mind are that you can't have negative equity in your current loan, and you have to be up to date on your current loan payments.
Picking the Right Time to Refinance
Getting approved for refinancing can be fairly simple, but when do you know the time is right? Well, it depends on a few things.
Typically, around a year or two needs to have gone by before you can qualify for refinancing. Lenders like to see a solid payment history on the loan, and if you're making regular monthly payments, your credit score should be better.
If the necessary time has passed and your credit score has increased, you’re probably in good shape to refinance. In fact, you may be able to get a better interest rate, which reduces your monthly payment and total cost.
On the other hand, another situation where it can make sense to refinance is if you're struggling to keep up with your monthly payment. In this instance, you could refinance and extend the loan term to make the monthly payment more affordable.
However, this increases your total cost in the long run, so you have to be careful. It makes sense if you need the relief, but you should view it as a temporary fix until you get your finances back on track.
Conversely, if you want to shorten your loan term, it's not necessary to refinance. You can simply pay more each month and you save in interest charges and pay off the loan more quickly without having to go through the refinancing process.
Looking to Refinance? We Can Help
If you took out a bad credit car loan and your credit score has increased, you should consider refinancing. We can help you with that. Our trusted partner gives you the ability to view and compare auto refinancing quotes online.
On the other hand, if you’re just looking for a bad credit car loan, we can certainly assist with that as well. For over 20 years, Auto Credit Express has helped consumers with credit trouble find financing by connecting them to local special finance dealerships.
To get matched with a dealer near you, simply complete our auto loan request form. It’s free, and comes with no obligations.