When you have bad credit, the right time to refinance your auto loan may be farther away than you think. Refinancing a car with bad credit isn’t always an option, and isn't likely to be very beneficial if it is. Don’t let that get you down, however, because the longer you wait, the more chances you have to improve your credit. This means you’re likely to see better rates when you do refinance.
Bad Credit Car Loans Lead to Better Credit
The truth is that getting a bad credit car loan is a great tool for improving your credit. Interest rates are higher with bad credit though, so borrowers are often eager to get a better deal as soon as possible. But, just when should you refinance your auto loan?
Having at least two years under your belt on your current loan before you consider refinancing is recommended. Refinancing won’t be able to help you achieve lower rates if your credit hasn’t improved, because it’s typically only available to people with good credit. The more payments you make on time and in full (both on your auto loan and your other bills), the more chances your credit rating has to rise.
Other Factors to Look at Before Refinancing
Refinancing is basically replacing one loan with another that has different rates, terms, and, often, a different lender. You’ll need to make sure you check all the required boxes before you try for a new loan.
Besides credit improvement, some of the most common requirements of refinancing are:
- Certain vehicles only – RVs, motorcycles, fleet vehicles, and commercial or delivery vehicles are usually excluded from standard refinancing. Branded and salvaged titles are a no-go as well. Your typical daily driver, car, truck, van, or SUV should qualify.
- Your loan must be current – If you’re behind on payments with your current lender, you won’t find a new one to approve you.
- No negative equity – Your car has to have equity, or at least be worth what you owe, in order to qualify for refinancing with a new lender.
- Your car has to meet new lender standards – All lenders have individual rules about acceptable vehicles when it comes to financing and refinancing vehicles. Yours must meet the model year and mileage requirements of the new lender you’re hoping to refinance with.
- Your loan amount must be in the lender’s acceptable range – Lenders vary on the minimum and maximum amounts of money they loan. The amount you’re trying to refinance has to fall in line with your new lender.
If you’re having trouble meeting all the requirements, you may have to wait longer before refinancing for a better interest rate. If waiting doesn’t seem like an option, or it’s getting harder to make your payments, talk to your current lender. Sometimes having a solid payment history is enough for them to consider extending or renegotiating your existing loan.
Maybe Refinancing isn’t Your Best Bet
If you were unable to qualify to refinance your car with bad credit, and refinancing through your current lender wasn’t an option, it could be time to consider other alternatives to auto refinancing. If you have bad credit, but it has improved since you first financed your vehicle, you might qualify for better rates on a different vehicle – as long as you’re working with the right lender.
Lenders that can finance bad credit car loans are typically found through special finance car dealers, and here at Auto Credit Express, we work with a large network of these dealers across the nation. Let us help get you on the path toward a dealer that has the lending resources available to help people with credit struggles. It’s free, fast, and there’s no obligation to buy. Just fill out our online auto loan request form and get the process going now!