How to Refinance Car Loan With Bad Credit? (An Overview, Top Companies & Latest Procedures)

Refinancing means getting a new loan to pay back the older one. Refinancing helps get you a better deal with much better perks. Therefore most people prefer refinancing home loans, car loans, and all other types of loans. But having bad credit can make everything, let alone, refinancing a tricky deal to get. While most individuals are unaware that you can still refinance a car loan with bad credit, many are unaware of the perks of refinancing.

In this article, we will discuss refinancing your car loans with bad credit. If you have bad credit, this article will help you get informed about the wonders refinancing will do and everything related to it.

What Does Refinancing an Auto Loan Mean?

What Does Refinancing an Auto Loan Mean?

Do you want to hold on to your vehicle and still save up on your loan? Refinancing is your best option. Basically, refinancing an auto loan means borrowing a new loan in order to pay off the existing auto loan. You can get funds for refinancing depending on the qualifications and requirements of different lenders and whether you meet them or not. While some lenders offer expensive deals, others offer pretty sweet ones too. You can get lower rates on your new loan, thus saving up several bucks on your expenses. When the interest rates are lower, you can pay off your debt faster. 

Basically the best time you can choose to refinance is when your score is improved by making on-time payments on your existing loans. A better score will win you a better refinancing deal. Moreover paying off your existing loan will improve your score further.

However, before you decide to refinance, there are certain factors you need to keep in mind if you want to save up. You will not benefit much from refinancing if only a few months are left in your current loan or your score has not improved much from when you borrowed the loan initially till now. 

People engage in refinancing in order to get lower rates which would free up a part of their monthly payment amount, which you can utilize for fulfilling other expenses and bills. The factors affecting your refinancing decision are the loan lifetime left on your current loan and your score. If you have just a few months left, refinancing might not be a better option. Moreover, if your credit score is the same as the time you initially borrowed your current loan, you will not benefit much from it.

Benefits

Benefits

Refinance auto loan with bad credit can actually be of great benefit. Most of you are not quite aware of the way refinancing works and just consider it another burden to clear out older debts. But, as a matter of fact, you can benefit from it. Below listed are some benefits of refinancing an existing auto loan with bad credit.

Improve Credit Score And Report

FICO has set a credit score ranging from 300 to 800. Any score below 580 is considered a bad score and therefore stands in your way of getting loans. You might still get an auto loan but at higher rates and fees. When you make on-time payments on your loan, the lender will report these to the credit bureaus. The credit bureaus will evaluate your credit report and restore your score. 

Moreover, when you refinance a car loan with bad credit, your credit score and report are improved even further. This is because you have paid off the existing debt with the new loan. Therefore it is safe to say that refinancing will help build a better score and report.

Decrease Your Monthly Payments

When you look for refinancing loans, you definitely will get better deals if your score is improved by on-time payments of existing loans. Therefore, if you have a better score than you previously did, the refinancing auto loan offers will be much more affordable. This means the rate will be lower and so will the monthly payments. Hence when you choose to refinance a vehicle with bad credit, you get a cheaper deal. This saves up a part of your monthly payments, thus, providing a window for fulfilling other expenses.

Save Up

Since refinance auto loan with bad credit provide lower rates, the monthly payments will in turn definitely be lower. This means that the monthly payment will be even lower than what you usually used to pay on previous debt. When the payment is decreased, you will start to save up some bucks on the expenses. With more savings, you can pay off the refinanced loan early and fulfill many other bills and expenses. 

Break from Payments

When you apply for refinancing, it will take some time for it to get processed and your repayments to start. During this period, you would have paid your old debt and no repayments are started yet on your new loan. Therefore, you get around one or in some cases two months off from car payments. This will allow you to meet other financial obligations in the time being or save for when repayments come into effect. 

Cash Out

Refinancing when your car’s value is higher than the loan amount left on your existing loan, can be really effective. How so? Suppose your car’s value is around $20,000 and the sum of debt left is $12,000. In such a case, when you decide to refinance, you get the funds according to the value of your vehicle, i.e. $20,000. Even after you pay off the existing debt, you will have left $8000 left yourself. Now, this amount can be either used to meet your other expenses or pay off a part of refinances loan for an even lower rate and monthly payments.

Loan Term Extended

Refinance car loan with bad credit can be really helpful when your pocket is all drained out and your score has not improved much. Your loan term will be increased but at a lower monthly payment and you get some time to improve your score. But you will have to make sure to select a lender that reports your monthly payments to the credit bureaus. Therefore when you make on-time payments, your score will be restored. 

Go from Leasing to Owning the Car

Refinancing is a great way if you want to fully own your car. When you get an auto loan, the car is on lease. Therefore it is not properly owned by you until you pay off the entire debt. But with a refinanced car loan with bad credit, you can pay off the car loan and own the car properly. Now you will have a fully owned car and just have to make small payments on your new refinancing loan. 

Best Car Refinancing Companies To Refinance Auto Loan With Bad Credit

When you refinance a car loan, you can get several offers. Some offers will be good but some might be expensive. whereas some lenders will charge different fees, others might not be suitable for you. Therefore in order to avoid scams or expensive deals that you are going to regret later, you need to know what car refinance companies you can trust. Below is the list of best auto refinancing companies you can opt for if you are looking to refinance car loans with bad credit.

1. Upstart

Upstart

If you have a bad score and are looking for loan options, Upstart might just be the right choice. The APR range is quite average and so is the loan amount. They do not need you to have a minimum credit score or any credit history. Not only this, they allow you to refinance your existing loans. With quick funding, you have the flexibility to use the funds. Therefore, if you require refinance vehicle with bad credit, Upstart will help you out. 

Established in 2012, Upstart uses artificial intelligence to underwrite clients rather than a traditional method. This means your credit history or score will not be checked. However, the approval decision will be made by checking your income and education.

Features:

  • APR range varies from 6.5%–35.99%.
  • The loan amount ranges from $1,000 to $50,000.
  • You can get a loan for a minimum of three and a maximum of five years.
  • You do not need any credit score or history.
  • No credit report is required.
  • AI inhibited underwriting methods, rather than traditional ones.
  • Check your education and income for approval.
  • 5% or $15 of the late payment fee, whichever is greater.
  • For refinancing your current loan must have $9,000 to $60,000 of the outstanding balance.
  • The existing loan must be started at least one month ago and not less than that.

Pros:

  • AI approach of underwriting.
  • Check your income and education, not credit reports.
  • All procedures are based online, therefore can be performed from the comfort of your home.
  • Refinance car loans with bad credit with cars distance covered up to 120,000 miles.
  • No minimum or maximum credit score requirements.
  • Funding is quick.
  • You can pre-qualify in just 5 minutes with a soft check.
  • No prepayment penalty is charged.

Cons:

  • You can get refinance funds but not new auto loans.
  • The APR is high.
  • Upstart is not available in all states.
  • The minimum loan amount due on the existing loan is high, i.e. $9000.
  • Does not allow co-signers or joint applications.
  • A late payment fee will be charged.

Qualifications:

  • Your automobile should be less than 10 years old.
  • The distance covered by the vehicle should be less than 120,000 miles.
  • Your existing loan should have at least $9000 due and a maximum of $60000.
  • The current loan should not be initiated in less than one month.
  • The car should be for personal use and insured.
  • No criminal records should be associated with the car.
  • No open insurance claims.

How to apply?

  • Initially, you will have to pre-qualify. In this step, you will be sharing your personal details along with your vehicle’s information.
  • Once you submit the pre-qualification form, it will take a mere five minutes to get offers along with a rate in case you pass the pre-approvals.
  • If you wish to proceed further, confirm all of your details, your vehicle’s data, and your current loan information. Once done, submit your final application.
  • As soon as your application gets approved, Upstart will pay off your existing loan and change the title of your vehicle.

2. Auto Credit Express

Auto Credit Express

If you are fed up with getting rejected by lenders because of your credit score, Auto Credit Express is the place for you! Auto Credit Express is not a direct lender. This means they do not issue loans but instead connect you to potential lenders or dealers. Therefore you can get a new auto loan as well as refinance auto loan with bad credit. All you have to do is fill out a form, which is forwarded to lenders. Any lender or dealer interested in your profile will then connect with you and present you with their offers.

This website allows you multiple choices to make a selection and choose the best out of the different choices you have. Approving you and the rates and fee do not depend on the site, it differs from lender to lender. Once you get connected with a lender and accept their offer, the work of Auto Credit Express is done.

Features:

  • Connects buyers and lenders.
  • Does not issue loans directly.
  • Auto Credit Express also engages with lenders providing timeshare refinance loans.
  • Provides you multiple choices.
  • Choices are limited to only those lenders who are partnered with them.
  • You will need to submit your social security number.
  • They do not get involved once you select an offer.
  • Will provide new, used, or refinance car loan with bad credit.
  • The terms and conditions of loans vary from one lender to another and are not under the control of Auto Credit Express.

Pros:

  • Connects you with different lenders, thus, providing you the leverage of selecting the best out of multiple choices.
  • Provides new, used, and refinance car loans.
  • Does not require you to have a minimum credit score.
  • Allows co-signers and joint applications.
  • The down payment requirements might be low.
  • There are not many requirements for qualifications.
  • You can also qualify for bankruptcy or repossession.

Cons:

  • The interest rates might be high.
  • Lenders might perform a hard pull after the final application submission. This will knock off some points from your credit score.
  • Is not available in Puerto Rico.
  • The options are limited to only those lenders who partnered with Auto Credit Express.
  • You will need to submit a social security number in your initial application.
  • The cost of a loan is not fixed, thus, varies from one lender to another.

Qualifications:

  • There is no minimum credit score. But some lenders do have a requirement, which is 400.
  • You do not need any credit history.
  • Your monthly income should be at least $1500.
  • 50% debt-to-income ratio.
  • There are no bankruptcy or repossession limitations.

How to apply?

  • Fill out the initial application form. You will have to provide all the details including your personal details and the type of loan (new car, used car, or refinancing) you are looking for.
  • Once the form is submitted, it will be forwarded to the potential lenders.
  • All you have to do is sit back. You will start receiving calls from lenders. They will all present you with different offers.
  • Review all the offers along with rates and terms and conditions and select the best suitable one.
  • Once you have selected an offer and submitted the final application, you might have to go through a hard pull, which will reduce your credit score by a few points.
  • You will get funds as discussed once approved.

3. MyAutoloan.com

myAutoloan.com

MyAutoloan.com is among the car refinance companies that are the marketplace for auto loans. You will be connected to different lenders willing to extend loans to you. They are partnered with all types of lenders who provide new car loans, used or second-hand car loans, and even refinancing vehicles with bad credit. Once you fill out the form, you will get connected to a maximum of four lenders as per your requirements. 

Once connected, you are not bound to select the offer. You can decline all of them if you do not find them pleasing enough. However, you can only accept up to one offer only. Therefore it is recommended to review all the offers carefully and select the best deal as per your requirements.

Features:

  • You get matches with a minimum of two and a maximum of four lenders as per your requirements.
  • Approval is quite fast.
  • You get matches within minutes of submitting your form. Therefore their service is quick.
  • You can get new, used, or refinancing funds.
  • Every day you will find new rates that are relatively low.
  • They allow a co-signer.
  • All the estimated rates are published on their website, therefore you do not need to file an application to find out rates.
  • Customer support is limited and you might not find them operating in all states.

Pros:

  • You get up to four matches with potential lenders in just a few minutes.
  • You have the leverage of selecting the best out of multiple options.
  • The rates are published on the website.
  • Some lenders might offer a discount if you turn on auto payment.
  • You are allowed a co-signer.
  • The funding is quite fast and so is the approval.
  • The requirements of qualifications are flexible.

Cons:

  • Customer support is limited.
  • They are not available in all states.
  • You will need to submit your social security number in the initial application.
  • Some lenders might perform a hard pull which will reduce your credit score.
  • You will get multiple calls which can be annoying.

Qualifications:

  • You need to have at least a 575 credit score.
  • No credit history requirement.
  • Your annual gross income should be $18000 for refinancing purposes.
  • No bankruptcy-related obligations.
  • The car should cover a distance under 125,000 miles.
  • Debt to income ratio varies from lender to lender.
  • You must be at least 18 years old.
  • The vehicle should be less than 10 years old.

How to apply?

  • Fill out the pre-approval. You will have to add your personal details along with the type of loan (refinancing or new). You will not have to go through a hard pull. Therefore credit scores will not be affected.
  • Once approved, you will be matched with four potential lenders. Compare your options and review them precisely. 
  • Select one and decline the rest. Submit your final application.
  • You will get funds as soon as you get approved.

4. Capital One Auto Refinance

Capital One Auto Refinance

This is the most popularly known car refinance company. Capital One is a quite popular financial institution. It offers several credit cards and loans for different individuals, even for those with poor credit. One such loan is the Capital One auto refinance loan. You can get a new car, a used car, and auto refinance loans. You will have to go through pre-approvals in which a soft pull is performed to determine whether or not you are an eligible candidate. Your credit score will not be affected but you can only move further if approved in pre-qualification. 

The entire application procedure for refinance car loan with bad credit is based online. You do not need to inquire about the rates as you will see them once you pre-qualify.

Features:

  • Offers new, used, and auto refinancing loans.
  • You will have to go through pre-qualification with a soft check.
  • The entire procedure is based online whether through a website or via the app.
  • You can select the due date for repayment.
  • You will need to submit your social security number.
  • Rates and offers are available after passing pre-qualifications.

Pros:

  • Pre-qualification with a soft check.
  • You can check the rates and offers after passing pre-qualifications.
  • You have the flexibility to select a monthly repayment date.
  • Mobile application for easier operations.
  • No application or orientation fee.
  • You will not be charged a pre-penalty fee.
  • Completely online-based application process.

Cons:

  • Not available in all states.
  • You will not get any discount on turning on auto payment.
  • Social security number is required for the initial application.

Qualifications:

  • Must be 18 years or older.
  • Your current loan should be insured by FDIC or NCUA.
  • You should be in good standing with your current loan, i.e. time payments.
  • You must have a monthly income of $1500.
  • The lender should be registered by a state or auto dealer and BBB accredited.
  • No credit score requirement.
  • Your current lender must be reporting to at least any one of the three major credit bureaus.

How to apply?

  • Pass the pre-qualification. You will go through a pre-qualification process with a soft credit check. This will not at all affect your credit score but will determine whether you are an eligible candidate or not.
  • Once you get approved in pre-qualifications, you will get offers along with rates. Review them carefully and select one to refinance car loan with a bad credit offer.
  • Submit your final application wherein a hard credit check will be performed. This is going to affect your credit score and review your report.
  • Once you are approved, close the loan by signing the final agreement and receiving the funds.

5. LendingClub

LendingClub 

Although LendingClub is better known for car refinance companies providing personal loans, they also issue direct auto refinancing loans. However, they do not provide loans for purchasing vehicles. The application process for LendingClub refinancing vehicle with bad credit loans is quite easy and quick. With an online-based procedure, you will have to go through pre-qualification with soft pull. Moreover, LendingClub does not require you to provide your social security number.

You can see offers once you pre-qualify. One thing you need to know is the offers you are shown depend on your credit score and report. A hard pull will be performed once you select the offer.

Features:

  • Offers pre-qualification with soft pull.
  • A hard pull is performed only after you select an offer.
  • LendingClub accepts cosigners and co-borrowers.
  • The application process is completely online.
  • They have a lower credit score requirement as compared to other lenders.
  • You do not need to provide a social security number. However, you will have to provide either SSN or ITIN.
  • The application process is easy and quick.
  • No rate discount on auto payment.
  • Bi-weekly payments are accepted.
  • No prepayment penalty.

Pros:

  • Accepts bi-weekly payments.
  • Pre-qualification with soft pull.
  • No prepayment penalty.
  • The application is based completely online.
  • No credit score requirement.
  • You do not need to submit your social security number.
  • You get a flexible repayment date selection.
  • No orientation fee.
  • Co-signers and co-borrowers are allowed.
  • Funding and application are fast.

Cons:

  • Cash-out refinancing is not permitted.
  • No rate discounts on auto payments.
  • Bi-weekly is not avoidable in the auto payment method.
  • The maximum loan amount is low.
  • They are not operating in all states.
  • There are certain vehicle restrictions.

Qualifications:

  • You need to have a minimum of 510 credit scores.
  • Does not require any credit history.
  • No annual gross income requirement.
  • You should have around an 80% of debt to equity ratio.
  • You must not have declared bankruptcy in the past 12 months.

How to apply?

  • Pass the pre-qualification with a soft check. This will not affect your credit score but will provide you a clear picture of whether you are an eligible candidate or not.
  • You will see loan offers depending on your credit score. Select an offer after reviewing it properly.
  • Submit a final application. A hard pull will be performed which will affect your credit score.
  • You will get funds within two business days after getting approval.

When Should You Refinance Your Car Loan?

Refinancing a car loan is a good option but not always. There are certain factors that will affect the benefits you get from refinancing. Now you must be wondering when is the best time to refinance your car loan and how can one know that the time has arrived? Having said that, the factors below will help you determine the answer to this query.

Credit Score

All the loan offers are determined by your credit score. If it is high, you get better options and visa-versa. However, your score will improve if you make on-time monthly payments on existing loans. Paying off the loan with refinancing funds will improve the score even further. Therefore, if your credit score has improved, you will get lower rates on your new loan. Therefore if you want to refinance auto loan with bad credit, even the slightest improvement in score will help you get rates lower than the one you are already paying.

Current Payments

When you get an auto loan with bad credit, you usually get high rates. However, after some time, you might realize your pocket is draining, and you cannot afford monthly payments. This is a good time to consider refinance car loan with bad credit. This is because the rates of new loans will be less and so will the monthly payments.

Rates

We are all aware that rates go up and down regularly, depending on the market. It is possible that the rates have dropped. In such a case, it is best to take funds for refinancing because the interest rate will be lower. This would save up a good amount of your expenses.

Car Value

If your car’s value is higher than the debt you owe, you might want to start considering refinancing. A higher auto value will get you better deals and offers which are most likely to help save up.

Expensive Loan (Existing)

When you get an auto loan with bad credit, you get high rates of interest with several charges and fees. However, after a few regular payments, not only your credit score but your credit report will also improve. Therefore refinancing vehicle with bad credit will help you get a better and cheaper deal.

How Can You Refinance an Auto Loan With Bad Credit?

Having bad credit can make loan procedures really tricky and difficult for you to get approved. But there are lenders who will not only provide loans but also refinance vehicles with bad credit loans to them. But in order to finance, there are certain steps that need to be followed. 

Step 1: Check Your Credit Score and Report

Refinancing opens up ways for engaging in better deals with a car refinance companies. But this is only possible if your credit score has improved. If the credit score has not improved, refinancing will not benefit you much. Therefore before you decide to refinance a car loan with bad credit, check your credit score and report. Sometimes your credit reports show inaccurate details and transactions which can affect approval decisions. Therefore verify your credit report and rectify all the efforts.

If your score has improved and you have a well-maintained report, you can get much better loan offers by refinancing your auto loan.

Step 2: Start Shopping

Before you look into different car refinance companies, make sure you have contacted your current lender. Your current lender might be able to give you a good deal. Moreover, they already have all your details, therefore you can avoid the entire application process altogether. 

If your current lender does not provide any refinancing auto loan with bad credit offers, shop around. Check offers from several lenders and review their services, terms and conditions, and rates. Compare all the lenders. You can find refinancing options at:

  • Traditional banks
  • Online lenders
  • Credit unions
  • Auto loan brokers
  • Lending marketplaces

Step 3: Apply

After you have reviewed all the different deals and offers, you will need to select one offer. This one offer should be the best suitable as per your requirements. Once you have selected an offer, submit a final application with the lender. Make sure you meet all the qualification requirements. This will require you to submit all important documents along with personal and contact details. You might also have to provide vehicle information and a co-signer’s details (if any).

Step 4: Pay Off

Once you get approved for refinancing a car loan with bad credit, you can do two things. First, wait for the funds to get transferred and when they will pay the older debt off. Second, wait for the refinancing company to pay off your existing loan.

What to Do if You Fail to Qualify?

When you apply for refinancing, it does not necessarily mean that you will get approved. This means your refinancing application might get rejected. What can you do in such situations?

Get a Co-Singer

Before you decide who your co-signer is going to be, check with the company if they allow a co-signer or not. If they do, make sure you choose your co-signer smart;y. You can leverage the score of the co-signer to get a better deal. However, in case you fail to make payments, the co-signer will be held responsible and their credit score will be affected as well.

Maintain the Value of Your Vehicle

You are more likely to get approved if your vehicle is valued at a higher price than the amount left on the existing loan. Therefore make sure you maintain a good value of your vehicle. This can be done by running fewer miles and getting it checked regularly.

Maintain a Good Credit Report

First of all, before taking a loan for an auto purchase, make sure the lender reports to at least one of the three major credit bureaus. Now, by making on-time payments, you can maintain a good credit report. This in turn will give you an improvement in your credit score. 

Improve Your Credit Score

You can improve your credit score in case you get rejected for refinancing. This can be done only if you meet all your payments on time. A good payment history will build up your score. Make sure you do not engage in several loan applications because they perform a hard pull which reduces your credit score. If you can, get more than one loan and make all the payments on time, this will improve your credit score faster. Your entire credit profile will affect your score. Therefore, maintain it properly to get a better score. 

Frequently Asked Questions:

Q: Is it good to refinance your car?

Refinancing has its own benefits but also has some disadvantages. You get a better deal at a lower interest rate and monthly payment. This would help you save up on your monthly payments and meet other financial obligations. But in some situations, you might end up with higher rates and an even longer-term period. Therefore it is best to check your term period and rate before engaging in any refinancing deal.

Q: How to refinance a car loan with bad credit?

  • Check your credit score.
  • Shop around and compare different lenders.
  • Select the best suitable offer.
  • Submit the final application.
  • Get approved and receive funds.

Q: How to get lower interest rates with a poor credit score?

Get a co-signer. A co-signer is someone who signs your loan application with you. In case you make any defaults, they will be held responsible. But you can leverage their credit score to get a better loan offer. Moreover, you might not have a good score but having a well-maintained credit report that is free from any major red flags will also help in getting good deals.

Q: What factors affect your credit score?

  • Payment history
  • Debt to income ratio
  • Length of credit history
  • Amount of outstanding loan you have
  • New loans
  • Unpaid credit
  • Bankruptcy or repossession
  • Credit mix

Conclusion

Refinance car loan with bad credit is a chance for you to get a better deal at a lower rate and thus save up on your monthly payments. Although it may be complicated, you definitely are going to enjoy saving up some bucks. However, you might want to avoid refinancing if only a few months are left as the term period on your current loan. Also, refinancing will not benefit you if your credit score is not improved because you will not get better deals.  

With this, we come to the end of the article. We hope you were able to make a good and informed decision about the best car refinance companies for your loan refinancing.

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