Can I Refinance My Car Loan with Bad Credit?
Let’s say you end up with a car loan, but the interest rate is higher than what you really want. You might cringe a little when you make payments. Yet, if you have bad credit, you might see that loan more as a gift than a curse.
But deep down, you’d love nothing more than to see your interest rate reduced. That would give you the restful sleep you really want. With that said, you may ask, “can you refinance a car loan with bad credit? The short answer is yes, even if your credit isn’t that great.
Benefits of Refinancing a Car Loan
You’ve no doubt heard about the benefits of refinancing a loan, whether it’s for a car, business or even your mortgage, assuming you’re eligible. If you’ve forgotten those benefits, let’s give you a few reminders.
Less interest, lower payments
Refinancing tends to lower your interest rates and monthly payments. Think of it as a break. Of course, refinancing may not change these things at all – in many cases, people refinance their loans merely to add a co-signer to the contract. But generally, refinancing a car loan (or any loan for that matter), makes the loan easier to afford in both the long and short run.
Accelerate Your Car Payments
Ultimately, a reduction in interest lets you pay off a loan much faster than if you had stuck with the original rate (or payment). It can be a big help knowing that the length of your loan is lessened. After all, you’ll be carrying a liability for a shortened period of time. Who doesn’t want that!
For these reasons alone, it’s common for people to ask what it will take to refinance their loan, and whether they qualify. The savings are worth the effort, and it’s something you too should give thought if the opportunity arises.
Getting There is the Issue
But refinancing a loan isn’t always as simple as walking through a door. For some individuals, it’s more like trying to navigate through a maze that seems to have no exit. This is especially true when your path is an intricate mess in the form of financial difficulties and uncertainties.
For example, you may have issues with credit. Whether you made some ill-informed and suffered credit dips. It happens.
Of course, with bad credit comes difficulty finding low-interest rates, making the hunt for affordable car loans a battle. It’s a bummer because those lower interest rates are what would help you out in the long run.
It’s a catch-22. Paying less in interest would save you money and help you manage your finances better, but your credit doesn’t allow you to get a loan that’s low in interest.
How Do You Get There?
So with these issues in the foreground, you may wonder if it’s even worthwhile trying to refinance a loan. Some may tell you that you should have never applied for a loan in the first place. “You should buy things in cash” or “you need to reassess your priorities,” they say.
But your hour-long commute, picking up the kids’ at school and grocery stops would make riding public transit stressful and exhaustive. Dealing with such hassles just wouldn’t make sense (it could prove unhealthy too).
Therefore, the best option is to perform double duty – slash your debt while trying to apply for a loan. And although it sounds tricky, it’s a feat you can accomplish.
Make a Debt Reduction Plan
Whether you’re in need of a loan or not, you should have a strategy in place to tackle your debt. But it’s even more essential if you have credit issues and need a loan.
Sometimes it is necessary to take on more debt while paying off another liability, but it’s a fine balancing act that takes precision and planning. In fact, it doesn’t hurt to subscribe to a proven method of reducing your debt.
There is the…
- Avalanche method – With the avalanche method, you attack the debts that have the highest interest rates FIRST. Gradually, you work your way down until all that remains are those with lower interest.
- Snowball method – With the snowball method, you tackle your smallest debts first, and work your way up until what’s left are your bigger liabilities.
- Budgeting – It’s absolutely essential that you tweak and refine your budget. When you set clear boundaries as to what you can save, spend or put towards debt reduction, you will know what to do with your money.
- Debt Counselling – If you just can’t find your way out of debt, then it might be in your best interest to find a counsellor. These professionals will see to it that you actually make strides forward in clearing your debt.
Why these steps are vital
You need to bring your debts down, because doing so has positive effects on your credit. As your credit improves, refinancing a loan gets much easier since lenders slowly start to see you as less of a risk. At that point, refinancing a car loan becomes a serious option worth considering.
Online Car Loan Eligibility & Application
Now if you feel that refinancing a loan is something that looms on your horizon, then it’s important for you to know the process of getting it done. With that said, it varies from lender to lender, and each will have their own criteria when it comes to refinancing a car. That could mean the denial of a financing request despite an improvement in your credit score.
- Age of vehicle – Some lenders won’t let you refinance a car if it is “too old”. Generally speaking, that may refer to cars that are more than seven years old.
- Balance of loan vs car value – If the loan balance is worth more than the vehicle itself, then a lender may decide not to take a risk on you by lowering your interest rate.
Fortunately, the process of getting approved is fairly simple if your credit is at least decent and if your lender is lenient. In fact, it can be as straightforward as how it was when you first applied for your car loan.
Getting the green light
- Call your lender to find out the balance on your loan
- See how much money refinancing can save you monthly (use an auto loan calculator for this)
- Inform your lender about your desire to refinance your loan
In most cases, you’ll get a response fairly quickly as to whether you’ll get approved for refinancing or not. And as mentioned before, the odds are in your favour if your credit isn’t too shabby or the lender isn’t too challenging.
Make it Happen
Asking yourself whether you can refinance your loan can be frustrating, because you know it may help you but can’t qualify for it. But don’t give up. If your credit is the issue, stay patient while you continue to pay down your debts. Consistency will help you get back on track so that your credit score improves. In time, refinancing will be a real option for you.