It’s possible to refinance an auto loan with poor credit, but there are still some requirements you need to meet to make it happen.
Refinancing Your Auto Loan
Refinancing is a great way to get a better interest rate and/or lower your monthly car payment. In fact, lowering your monthly payment is the main reason why borrowers refinance.
Refinancing works by replacing your old auto loan with another one. You can work with the same lender that originally financed your vehicle, or find another lender. Whoever you choose to refinance with, the lender on the new loan pays off your old loan and replaces it with one that has more favorable terms, if you qualify.
If you were originally approved at a higher interest rate than you wanted, or you simply would like a lower monthly payment, refinancing could be for you. However, there are some stipulations, and you need to find a lender to work with.
You may be able to refinance if your credit is poor – you don’t always need a perfect credit score to change the terms of a car loan. But you do need to have better credit.
Requirements to Refinance Your Car Loan
No matter which lender you choose to work with, you’re going to have to meet the requirements. Refinancing rules vary by lender, but there are common ones which can help you decide if refinancing is right for you.
Common refinancing standards usually include:
- You’ve had your loan for at least a year.
- Your vehicle has fewer than 100,000 miles.
- Your car is less than 10 years old.
- Your loan balance isn’t too high or too low (depends on the lender).
- You’re current on the payments and have a good payment history.
- You don't have negative equity (you owe more on the loan than the vehicle’s value).
- Your credit score is good, or your score has improved since the start of your loan.
The last requirement regarding credit scores is especially important to poor credit borrowers. If you originally took out a bad credit car loan but your credit score has increased since your loan began, you could be eligible for refinancing.
However, if your loan, your vehicle, or your credit score doesn’t meet the requirements, refinancing might not be in the cards right now. However, trading in your current car for a more affordable one might be your next move. If you’re rather confident refinancing isn’t right for you and you’re worried about keeping up with the payments, a more affordable auto loan could help your budget and credit score.
Trading In for Something More Affordable
If you need a lower monthly payment, and you’re looking into refinancing to avoid defaulting on your loan, you still have options – even with a poor credit score.
Here at Auto Credit Express, we connect poor credit borrowers to dealerships with the lending resources they need. We have a nationwide network of dealers with special finance departments, and we can help connect you to one.
To get matched to a dealership near you, simply complete our free car loan request form, and we’ll get to work for you!