If you’ve had a bankruptcy discharge, and then successfully took out a bad credit auto loan after, when can you refinance it? You can refinance a post-bankruptcy car loan, but you generally have to wait for at least a year to pass in order to qualify – as is the case for any other auto loan. There are also specific car refinancing requirements you need to meet that vary by lender. However, we can tell you what most lenders look for so you know what to expect.
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.
The Right Time to Refinance a Car Loan
The main reason to refinance is to save money on your auto loan. If you want to pay your car loan off faster, you only have to increase the payment each month – there’s no need to refinance.
However, not everyone can do this if their monthly payment is currently pushing the limits of their budget, and that’s where refinancing comes in handy.
- You want a lower interest rate – If you took out a bad credit auto loan, your interest rate is probably higher than average. If your credit score has improved since taking out the original loan, you can try to qualify for a better interest rate by refinancing.
- Your financial situation changed – If you lost a job, or something else like medical expenses has affected your financial situation, you can refinance and extend the loan term. Increasing the length of the loan allows you to lower your monthly payment, but it increases the total cost of financing in the long run. Still, this can be a necessary temporary fix until your situation improves.
Auto Loan Refinancing Requirements
Now that you know the right times to refinance, how do you qualify? Most lenders like to see that at least a year has passed since taking out the original loan and that your credit score has improved. In addition, you typically must meet these refinancing requirements:
- Be current with your payments – Lenders need you to be current with your monthly payments. Most aren’t going to approve you for refinancing if you’re delinquent.
- Have equity in the vehicle – You should have equity in your car. Equity is when your vehicle’s actual cash value is more than the loan balance.
- Make sure your car meets the lender’s age and mileage requirements – Each lender has their own requirements your vehicle must meet in order to qualify for refinancing, including age and mileage limits.
Looking to Refinance?
You generally need to have improved your credit score in order to refinance an auto loan, as well as meet the lender's other requirements. If you're looking to refinance, our trusted partner can help you find the refinancing deal you're looking for.
If, on the other hand, you simply need a bad credit car loan, Auto Credit Express can help with that. Our service matches borrowers to local dealerships that know how to work with bad credit. Get the process started today by filling out our free and easy car loan request form.