If you’re drowning in debt and struggling to make payments each month, there are several ways to settle your debt for pennies on the dollar.
Consider Jake. Jake made some poor financial choices when he was younger and is dealing with the fallout years later. He wants to get onto a solid financial path, but the annual percentage rate on his debts are incredibly high.
The interest rate on his car loan is especially crushing, making his monthly payments so expensive that he doesn’t have money left to build savings or pay down his other debts. He’s even missed a few payments, and the loan has been sent to a collections agency.
He knows he needs to make his monthly payments more affordable if he ever wants to be in good financial standing.
Jake has a number of options. Jake can try to negotiate with the collections agency to settle the debt, or he can refinance the debt.
In this article, we’ll be covering the latter option and explaining how you can refinance your auto loan even with bad credit to get a better rate.
How To Refinance Your Car Loan with Bad Credit
Before you begin the application process, there are a few steps you should take to get the better terms even if you have a bad credit score.
1) Check Your Credit Report and Credit Score
You should check both your credit score and your credit report. Your credit score will give you an idea of what your options are. You’ll have the best chance of successful refinancing if your credit score has improved since taking out your car loan.
Comb through your credit report and look for inaccuracies or anything that shouldn’t be on there. For example, most old debts and missed payments are supposed to be removed from your credit report after seven years, yet sometimes they remain on the report mistakenly.
If you find any inaccuracies or old items that should have been taken off, you can have these removed and bring your score up a little higher before you start the refinancing process. This will give you the best foundation for negotiating a loan refinancing. The better your credit score is, the more likely that you’ll get a good deal.
2) Investigate Lenders
There are generally two options when it comes to refinancing. You could either refinance with the lender of your original loan or you could shop around financial institutions for a new lender. Be sure to check the terms of your current lender and see if there will be any fees for an early payoff of the loan amount.
If you decide to go with a new lender, research their reputation. There are some subprime refinancing lenders out there with a plethora of hidden fees and rates that could severely harm your financial standing. Take the time to read online reviews of any lender.
When shopping around, consider that hard pulls on your credit will affect your credit score. You can minimize the impact of this by shopping around very quickly. FICO scoring models count numerous inquiries of the same type as one inquiry if they’re all conducted within the same 45-day period. For VantageScore, it’s a 14-day period. All around, the faster you get this step done, the less impact it will have on your credit score.
In many cases, you can get pre-approved with only a soft inquiry. Check to see whether a hard or soft inquiry will be done before giving your information to a prospective lender.
3) Choose a Lender that Best Serves Your Needs
Once you’ve got a decent number of quotes from different lenders, look through all of them to determine the best deal during the life of the loan. Keep in mind the potential fees of paying off your current lender early and factor this into your decision. You’ll also want to consider interest rates and the lengths of the prospective loans.
Sometimes you can lower your monthly payments if the loan is stretched out over a more extended period. Sometimes, this means paying more in interest. Although many car loans charge the bulk of the loan’s interest within the first two years of the loan.
Overall, there are many factors to consider, so you want to take some time with this decision. Don’t jump on the first refinancing deal that is offered to you because you could be leaving hundreds or even thousands of dollars on the table.
A company we recently reviewed is MyAutoLoan.com. They are a reputable company that connects you with several financial institutions for the best rates, regardless if you have bad credit.
MyAutoloan.com is an online service that helps connect borrowers with auto loan providers. The website offers a variety of features to help you get the best loan possible, including:
- A loan calculator to estimate your monthly payments
- A library of articles on everything from buying a car to negotiating auto loan terms
- A network of participating lenders who are competing for your business
MyAutoloan.com is a great resource for anyone looking to finance a new or used car. With its easy-to-use tools and wealth of resources, MyAutoloan.com can help you get the best loan for your needs.
They are a reputable website that connects you with many different types of lenders so that you can find the best loan for your needs.
Is Refinancing Your Car Worth It?
It depends, but in many cases, yes, it is. If your credit has improved since you’ve taken out the loan or interest rates have improved, then there’s a good chance auto refinancing could lower your monthly payments or a lower interest rate. One smaller bill per month can be enough to give you the wiggle room to get your finances in order in the long run.
Refinancing has some downsides, including the temporary damage that refinancing could do to your credit score. Refinancing a car loan often lowers your credit score. That being said, if the monthly payments are more manageable after the refinancing, making the payments on time every month will improve your credit score longer term.
The value of your car will also factor into whether refinancing is worth it or even possible. You can check the value of your car by using the Kelley Blue Book Website.
If your car still holds much of its value, then you’re likely to get a better deal. On the other hand, with a car that isn’t worth very much, you may not even be able to find a lender willing to refinance, and the time wasted and hard pulls on your credit may not be worth it.
- You could lower your car payment, leaving you with extra money in your budget each month.
- You could spend less on interest, saving you hundreds or thousands of dollars over the loan’s lifetime.
- With more manageable monthly payments, you may find it easier to make your bills on time and in full each month. This will raise your credit score over time.
- Refinancing and taking out a new loan can lower your credit score.
- Lenders may perform hard pulls on your credit while shopping around, which can temporarily lower your credit score.
- You may have difficulty refinancing if you have an older vehicle or one that just hasn’t held its value. If you do get a refinancing offer, the new terms may not be as favorable as they would be with a car that has more equity.
How To Avoid Refinancing Scams
Like with any other financial service, there are grifters out there waiting to take advantage of people trying to better themselves in difficult situations. Many subprime borrowers are quick to sign a contract without doing the due diligence. The good news is that plenty of credible lenders are also out there. With some savvy shopping, you can find credible lenders and avoid scammers.
- Never give a payment upfront. Many refinancing scammers will ask for an upfront “appraisal fee” or “application fee” before you see any loan term and conditions or sign any paperwork. They often employ high-pressure sales tactics, like telling you that you’ll miss out on low rates or offering a money-back guarantee. There are usually hidden terms that work against you with grifters like this. Credible lenders will make a refinancing offer without charging anything.
- Research the lender and find out what their reputation is. The Better Business Bureau is an excellent place to start when you need to know whether a lender is credible. You should also do an internet search and read articles and reviews about the lender.
- Read everything thoroughly before signing. Some refinancing scammers will tell you one thing but hide the real deal in the fine print. Even when you’re positive you’re dealing with a credible lender, it’s good practice to always read an agreement before making a commitment. Be on the lookout for prepayment penalties or any other fees that would add additional cost to your loan.
Wrapping It Up
Refinancing your car loan can result in a lower monthly payment, and you could save a lot of money in interest paid. If you had poor credit when you took out your car loan, you should refinance as soon as possible since most of the interest is charged early on in a car loan.
It’s a good idea to negotiating a better interest rate if your credit score has improved or interest rates on car loans have decreased. On the other hand, you may run into difficulty refinancing if your car has depreciated in value.
If you’re looking to refinance your car loan, you should start by checking your credit score, reviewing your credit report, and researching lenders.
Be sure to take your time selecting the right lender for you regardless of your credit rating. There are many factors to consider when selecting a refinancing loan offer. If the payments of the new auto loan are about the same your current auto loan, it may not be worth it as it will be seen as a hard inquiries to the credit bureaus and lower your score.
Improving your financial standing can take time, and often people don’t know where to start. Refinancing a car loan is often a good place to start because there are so many refinancing options and having a little extra money in your budget each month means you can save or pay down other debts.
Make sure you review your credit report and understand your credit history and then select the best rates from a reputable company.