Choosing whether to get another car or refinance the one you have can be a tough decision. Your personal situation and what you need next can influence your choice, so here’s some guidance.

Refinance or Upgrade?

Refinancing works by either extending your loan term or lowering your interest rate (sometimes both). You’re replacing your existing loan with another one, so this gives you the opportunity to change terms and possibly save money. Your refinancing lender pays off your existing auto loan and you start another one with the new lender.

The biggest question to ask yourself about whether or not refinancing makes sense for you is this: do you like your current vehicle?

In most cases, borrowers that refinance their car are looking for a lower monthly payment. If you apply for refinancing, you usually have two options for lowering your payment – qualifying for a lower interest rate or qualifying for a longer loan term. If you don't qualify for a lower interest rate, your only option to lower your monthly payment would be to extend your loan term – which means paying for your vehicle longer. Can you see yourself keeping it for many more years?

Auto loans are typically simple interest, which means your interest charges accrue daily. The longer you have a loan on your car, the more you pay for it. Consider the implications of extending an auto loan term, because it could cost you and possibly paying more for it than it’s actually worth.

Refinancing and Poor Credit

Another thing to consider is your credit score. Borrowers with a lower credit score can struggle to get a low interest rate, but the good news is that refinancing doesn’t require a flawless credit score. Refinancing can be done with poor credit, but there are still stipulations you need to meet.

For starters, most refinancing lenders require that your credit score be better than it was when you got the original loan for your car. If you had really bad credit when you got the auto loan, but you maintained the loan well and made all your payments on time, your credit score may be better.

Another common requirement of refinancing is that you haven’t missed any payments on your original loan. Your new lender wants to make sure that refinancing the vehicle is a good deal for them – they want assurance that you can repay your loan. Additionally, lenders don't refinance all vehicles, they need to know that the car can likely last for the duration of the loan.

Refinance or Buy a Car With Bad Credit?Other common requirements for refinancing usually include:

  • You’ve been financing the vehicle for at least one year
  • The loan amount isn’t too small or too large (varies)
  • Your car isn’t over ten years old or has over 100,000 miles
  • You have equity (vehicle’s value is more than its loan amount)

Of course, all refinancing lenders vary and they may have more or fewer requirements.

Try Rate Shopping First

Before you decide to refinance your vehicle or buy another, it’s worth your time to compare interest rates offered by local lenders. The higher your credit score, the better rates you’re likely to be offered.

Whenever you apply for financing with a lender that checks your credit, they do a hard inquiry (or pull) which lowers your credit score a little for up to 12 months. But if you apply with multiple lenders of the same type within two weeks, only one hard pull hurts your credit score. All are reported on your credit reports, but only one carries the impact if rate shopping is done correctly.

When you have bad credit, it’s important to consider your credit score and avoid further damage. If your credit score is too low, you may run into issues qualifying for refinancing or another auto loan – and applying for new credit across a few months can just decrease your odds of qualifying even more.

You can also do the same thing for another auto loan if refinancing isn’t right for your situation.

Financing a Vehicle With Bad Credit

If you think that refinancing may not work out for you or your car, then financing another vehicle and trading in your current one may be the way to go. And if you think your lower credit score might be in the way of another auto loan, you’ve got options.

Subprime financing is for borrowers with less than perfect credit. These bad credit auto loans are offered at special finance dealerships. To qualify, a stellar credit score isn’t required because they specialize in helping borrowers with questionable credit.

This means proving income, residency, and having a down payment. Stability is the name of the game – the longer you’ve held the same job and lived in the same area, the higher your chances of qualifying. Your income and past work history are examined as well.

While subprime financing does require a down payment (in almost every case), if you have a trade-in, it can help meet that requirement. Usually, subprime lenders require at least $1,000 or 10% of the vehicle’s selling price in cash and/or trade-in equity.

Need Auto Connections? We Got You Covered

When you’re on the prowl for a refinancing lender, or a lender that can assist with bad credit, we’ve got connections for either route.

You can check out our resource center for connections and more information on refinancing your current vehicle. Or, if another auto loan is what you need, let us match you to a dealership that works with bad credit.

At Auto Credit Express, we’ve created a nationwide network of dealers that are signed up with subprime lenders. After you complete our auto loan request form, we’ll look for a dealership in your local area for free and with no obligation. Get started on the path for your next car right now!