Sometimes, you can only qualify for a high interest rate on a car loan. Many borrowers feel they don’t have a choice – there are times when you just need a vehicle. But, if you want a chance to lower your interest rate, refinancing could be the answer you’re looking for.
The Cost of a High Interest Rate
Your credit score is almost always the main factor in what interest rates you qualify for on a car loan. So, if you took on a bad credit auto loan, you may have only qualified for a high rate. However, refinancing gives you the chance to try for a lower interest rate on the same vehicle.
Refinancing is the process of paying off your vehicle’s loan and replacing it with a new one. Most borrowers refinance to get a lower car payment, and lowering your interest rate can help with this while saving you money over the course of your loan.
To qualify for refinancing, most lenders require that:
- Your vehicle has equity
- Your car is less than 10 years old and has less than 100,000 miles
- You haven’t missed any loan payments on your original loan
- Your credit score is good or has improved since you started the loan
- It’s been at least one year since the start of the original loan
Many lenders also have stipulations on the size of your loan, and may require that your loan balance isn’t too high or too low. Most lenders prefer to refinance vehicles that are in good condition, too, since it isn’t in their best interest to refinance cars that are at high risk of mechanical failure.
Refinancing the Smart Way
If you’re unable to refinance and lower your interest rate on a bad credit auto loan, then you may be offered the chance to extend your loan term – but this isn’t advisable if you want to save money overall. A longer loan term can lower your monthly payment, but it can cost you more in the long run.
Auto loans use a simple interest formula (in nearly every case), which means the longer you have the loan, the more interest charges accrue over time. If you just extend your loan term without lowering your rate, then it means paying more for the same vehicle.
If you want to increase your chances of qualifying for a lower interest rate with a refinancing lender, you may want to consider finding a cosigner. Cosigners “lend” you their good credit score to assist you in qualifying for loans and a chance at getting a lower rate.
Bad Credit Lending Connections
If you’re looking for a refinancing lender, then visit our resource center to learn more about refinancing a car loan with poor credit.
Whether you’re on the hunt for another auto loan or refinancing connections, look no further than Auto Credit Express. We’ve created a coast-to-coast network of special finance dealerships that assist bad credit borrowers with vehicle financing. If you don’t think your car loan is a good fit for refinancing, then trading in your current car for another one may be a good route to go. Fill out our free auto loan request form and we’ll look for a dealer in your local area.