If you want to change your car loan terms, you’re going to have to refinance. However, if you can’t refinance, there are ways to lower your interest charges on an existing auto loan.

Lowering Your Car Loan Interest Rate

Can I Lower My Interest Rate Without Refinancing My Car Loan?If you want to lower your car loan’s interest rate, refinancing is likely to be your only option once you already have a loan. If you originally qualified for a higher interest rate than you wanted, waiting until you can refinance is typically what you need to do to lower your interest rate.

Refinancing is replacing your current loan with a new one, usually with different and more pleasing terms. In other words, the remaining balance of your auto loan is reworked into a new contract.

When borrowers refinance, they usually do it to lower their monthly payment or lower their interest rate. If you originally took out a bad credit car loan and want to lower your interest rate to save money in the long run, you may be able to qualify for refinancing – if your credit score has improved since the start of your loan, that is.

What Is Refinancing?

With refinancing, you typically have two options. You can either lower your interest rate, or lengthen your loan. A lower interest rate saves you money throughout your auto loan term and lowers your monthly payment. Lengthening your car loan lowers your monthly payment, but it costs you more in the long run.

Sometimes, you can do both, but you need to crunch some numbers to see if you're saving money overall or not.

To qualify for refinancing, you need to meet some requirements. Lenders vary, but they typically ask their borrowers to meet these general requirements before they can refinance:

  • Vehicle must have less than 100,000 miles.
  • Car must be less than 10 years old.
  • The auto loan must be at least one year old.
  • Your credit score is good or has improved since the start of the loan.
  • You owe less than the vehicle is worth (equity).
  • You don’t owe too little or too much (varies depending on the lender).

If you think you and your car meet these requirements, then talk to your current lender or a new one about lowering your interest rate. However, if things for refinancing don’t seem to fit your current situation, there are still ways to lower your interest charges without refinancing.

Lowering Interest Charges on Your Auto Loan

You don’t have to refinance to save some money on interest charges, though. Auto loans are typically simple interest loans, which means you’re charged interest daily on what you owe. This means that after each payment, there’s less to be charged interest on. The faster you pay off the vehicle, the less interest you’re charged.

Making some lump sum payments lowers your loan balance and decreases the amount you’re charged interest on. Additionally, you could also pay a little extra each month when you can. Or, you can make extra car payments whenever you’re able to. Anything you can do to lower your auto loan balance more quickly helps.

If you’re about to take out a car loan, and you don’t have the best credit, you can be proactive. A way to mitigate the amount of interest you’re going to be charged is to prepare a sizable down payment and opt for the shortest loan term you can afford. Bad credit and long loan terms can spell lots of interest charges – and often long loan terms mean paying way more than the vehicle is worth!

Ready for Your Next Vehicle?

If you’re getting ready to apply for an auto loan, try to improve your credit score as much as you can. Your credit is a major factor in what interest rate you’re going to qualify for. Additionally, a large down payment may be able to get you into a lower interest rate, too, since the loan amount is going to be smaller with a big down payment.

Another way for bad credit borrowers to improve their chances of getting a lower interest rate is by having a cosigner. Cosigners lend you their good credit to help you qualify for a car loan, and possibly a lower interest rate than if you were to apply by yourself.

If you don’t think refinancing your current auto loan is your next step, then perhaps trading in your vehicle for something more affordable could be for you. Even if your car doesn’t quite qualify for refinancing, if your credit score is good or better than it was when you took out the auto loan, you may be able to get into another car loan with better rates now.

With bad credit, it can be hard to find a lender that can work with you. We want to help with that! Here at Auto Credit Express, we’ve produced a nationwide network of dealerships that have lending options for borrowers in unique credit situations. To get matched to a dealer in your area, fill out our free auto loan request form.