Many borrowers who took out a bad credit auto loan consider refinancing to lower their monthly payment and possibly qualify for a better interest rate. In order to qualify to refinance your car loan, though, you typically need to have good credit or your credit score needs to have improved since taking out the loan. If it hasn’t improved, your chances of getting approved are lower.
Why Timing Matters with Refinancing
With refinancing, timing is everything. When you refinance a car loan, you’re replacing your current loan with a newer, more affordable one.
You need to have good credit or your credit score needs to have improved before you can qualify because lenders want to see a solid payment history with your current loan. This typically means at least a year or two needs to have passed.
Payment history is the biggest factor in determining your FICO credit score, making up 35% of it. As long as your car payment and the rest of your bills are paid on time each month, you should see your credit score go up. This is a surefire way you can help yourself qualify for refinancing.
If your credit score hasn’t improved much, some lenders may still be willing to refinance your loan. You may not qualify for a better interest rate if your score isn’t great, but you may be able to lower your monthly payment by extending the loan term.
If this sounds like your situation, you should start with your current lender to discuss the possibility of refinancing. If you have a good relationship with them and your loan is in good standing, they may allow you to refinance the loan despite not having a great credit score.
How to Qualify to Refinance Your Car Loan
In addition to having an improved credit score, what else does it take to qualify for refinancing? What lenders look for varies, but you can expect them to carry these four other requirements for refinancing:
- The age and mileage of the car – Your vehicle must be under a certain age and mileage to qualify for refinancing. Generally, lenders have caps of 10 years and 100,000 miles, but this varies from lender to lender.
- Loan amount – Additionally, your loan amount has to fall within the new lender's acceptable limit. Make sure to ask about this ahead of time so you know what to expect.
- Current on payments – You have to be current on your loan payments in order to qualify to refinance. You can't expect a new lender to want to approve you for a new loan if you're behind on your old one.
- Equity situation – Your car must be equal to or worth more than what you owe on the loan, which is known as having equity. If your vehicle is worth less than what you owe, you have negative equity and you probably aren't going to qualify.
As for the type of lender you should work with, it depends. As mentioned, you should start with your current lender to see if they’re willing to refinance your auto loan. If they turn you down, our trusted partner can assist you with car refinancing and allow you to view and compare offers online.
Get a Bad Credit Auto Loan
If you don’t have to refinance but have bad credit and are looking to get an auto loan, we can help with that. Here at Auto Credit Express, we work with a large network of special finance dealers all across the country that have lenders available to help people who are struggling with credit issues.
Our process matches you with a local dealership in your area – it's free, easy, and there's never any obligation. To get started, simply fill out our car loan request form today!