Many a time we have gotten ourselves into auto loan agreements which did not turn out to be very favorable and may have had higher rates of interest. There is a possibility that there were no other options available for you to shop around for a better car loan and you succumbed to the first deal you got. It is possible that you might have made late payments that could have adversely affected your credit history and gotten you into bad credit. Now you are thinking of options to refinance your car loan with bad credit history which you have.
What is bad credit?
Bad credit can be referred to as an individual’s credit history and it means that they have a high credit risk. Having a high credit score means the individual has good credit while a low one implies that they have bad credit. Generally, lending to those who have bad credit means there is a great risk of that individual defaulting or missing their payments as compared to those who have good credit. There are still, however options for bad credit auto refinance.
What do you mean by refinancing?
Refinancing means when a person or a business changes the payment schedules and the rate of interest from the previous or the existing agreement. Those who have borrowed would want to go for refinancing options for their loans if they might experience savings on their debt payments under a new credit agreement. Refinancing can be done for auto loans, mortgages as well as other loans. Refinance car with bad credit options are there as well.
Why go for refinancing?
There might be many reasons why a borrower may want to consider refinancing for their loan and consider a whole new credit agreement. The reasons may be:
- The borrower now has a better credit profile
- There has been a change in the long term financial plans
- Get new credit terms
- Pay less in the form of interest over the life of the loan
- Change the duration of the loan
- Change to a adjustable rate or to a fixed rate amount on their loans
Whatever the reason may be, the option of refinancing is available to all, even those who have bad credit. Having bad credit does not mean you will not get a loan, rather it means the terms or the rate that you will get might not be favorable to you. It does not mean they are being unfair, it simply means you having bad credit means there is an inherent risk involved with regards to lending to you. There are still ways to refinance car loan with bad credit.
How to refinance auto loan with bad credit?
Many borrowers who have bad credit still want to refinance their auto loan but not all of them will be able to qualify for the refinancing with better terms than they have already. It is quite a difficult process, especially if you have not done anything to improve your credit rating. It can be done however, if you have completed all of your payments to the original loan in full and on time for at least eighteen to thirty-six months. Having a steady track record of loan payments mean you are serious about paying back your loans, as such there might be better chances for your loan to get approved.
This is the part where you must research into the options that are there in terms of banks and lending institutions. All of these banks and the lending institutes will have different requirements and criteria for the type of car to refinance and you must make sure you meet their criteria and narrow them down.
- Improve your credit score
If you want to apply for refinancing and you can for now continue making payments on your current auto loan, then it is advisable to do so. Continuing to make timely payments will help to build up your credit history and this is also end up improving your credit score prior to apply for refinancing so that you stand a better chance. Most of the times, there are not very good rates for bad credit auto refinance.
- Shop for rates
Majority of the lending institutions or banks do offer free quotations so you can easily check with a few and find out what interest rate you are qualifying for. Unless you compare a few places, you would not know where to get the best and the cheapest rate from. The interest rate is the main factor for refinancing and having a bad credit score can really influence the rate of credit that you might be offered. Those who have bad credit are generally offered subprime loans that have higher credit and may even be 15-20% more than prime loans.
- Apply for refinancing
You can inquire at different places to find out if you are eligible but if you are applying a multiple places, makes sure you do this in the 30 day period. Make sure you do not apply for other credit facilities like home loans while you are applying for the auto refinancing as it may hurt your credit report.
Finally, you may be offered a lower monthly payment but it would probably be at a very high interest rate. Always remember to ask questions, especially regarding your total loan amount so that you can compare with your current loan amount and then decide whether you really want to consider this possibility. You may finally be able to refinance auto loan with bad credit.
What to do if you are turned down for refinancing?
There is quite a possibility that, owing to your bad credit, you may be denied refinancing. One thing that you shouldn’t do is to try and get another loan from some other lender. Do not apply elsewhere, as most likely their response will probably be the same. Instead you should:
- Try to improve your credit score
- Look for error in your annual credit report which may have been affecting your credit score
- Make timely payments in your existing loan
- Avoid making any big changes financially
Most of the times, having bad credit sometimes limits your options for refinancing. It is possible that you may be rejected by lenders and as such should work towards improving your credit score so that you do not have to refinance car loan with bad credit in the future.