Yes, you can refinance after a bankruptcy, but you may not save as much as a borrower with a clean credit file. Bankruptcy results in a lower credit score, so you may only qualify for higher-interest loans from a subprime lender. Here's what you need to know if you're looking to refinance a car after a bankruptcy discharge.
Refinancing a Car Loan After Bankruptcy
When you refinance a car loan, you're signing a new contract for your existing car. This is often done with a new lender, though it's typically a best practice to see if your current lender can refinance your vehicle first.
Refinancing is done to save money on a monthly car loan payment. Typically this means qualifying for a lower interest rate, a longer loan term, or both. Refinancing is good to do when your financial situation has changed, or you desire a lower interest rate to cut down on the overall amount of your loan.
If you survived bankruptcy and were able to keep your car loan, you may want to look for a lower rate. However, depending on your credit situation when you took out the loan, you may not qualify for lower rates, since bankruptcy typically lowers your credit score. It's a good idea to know where your credit stands and to rate shop for the right lender for your situation.
According to Rate Genius, 30% of applicants with bankruptcies on their credit reports were approved for refinancing in 2019. These applicants received a higher interest rate than others but were still able to lower their auto loan rates by an average of 5 points.
Your credit score is one of the major factors in determining auto loan eligibility, even when you're refinancing. However, there are other factors that lenders look at which could help you if you're strong in those areas on your application. This is because when a lender considers you for auto loan refinancing they look at more than just your credit score.
They also look at factors like your debt-to-income ratio and loan-to-value ratio as well as the value of the vehicle and your income. Subprime lenders know that they can't rely on your credit score alone, so they're more apt to look at the overall picture of your credit and financial life.
Additionally, if you were able to keep your car throughout your bankruptcy, you may be able to refinance your vehicle, but you may not be able to do it right away. It typically takes one to two years to rebuild your credit after bankruptcy, and a refinancing lender may want to see your efforts.
Here at Auto Credit Express, it's our mission to help borrowers get the most out of their auto loan experience even if they're refinancing with bad credit. Our network of refinancing lenders can help you get started on the path toward savings. To get started simply fill out our fast, free, auto loan refinancing request form.