Financing auto loans with a bad credit score

Is it possible to refinance your auto loan with a bad credit history or a low credit score? Yes, it is.

It's common for people to have bad credit scores, which can hamper their ability to apply for a loan or refinance. However, it is possible to refinance your auto loan even with a bad credit score.

Auto loans and refinancing require no minimum credit score, which you may find surprising. Despite having a credit score well below 600, several lenders can give you a loan.

Auto lenders consider your credit score while deciding whether or not to issue you a new loan; however, they don't focus solely on it. They also consider other factors, such as your income, debt, existing auto loan, and vehicle.

Should you consider refinancing?

It won’t be wise to refinance your auto loan just for the sake of it. It depends on your financial circumstances if you should refinance or not.

By refinancing your auto loan, you'll end up paying less interest over time since the APR is lower. But you might have a hard time getting a lower rate if you haven't improved your credit since you took out the loan.

You may have to refinance for a longer period to lower your monthly payment regardless of the rate. Your short-term costs can be reduced by refinancing, but your interest rates will rise at the same time, canceling out any savings.

What factors to consider when applying for refinancing?

Credit score

Generally, the higher your credit score, the better your auto refinance rate. Getting a lower interest rate could be possible if your credit score has improved since getting your original loan. It may be lower than you expected, so check your credit report at annualcreditreport.com.

Every auto lender uses different credit scoring models, but the general breakdown is as follows:

• 781-850: Great
• 661-780: Good
• 601-660: Average
• 500-600: Weak
• 300-499: Poor

Number of refinancing

Refinancing a car impacts your credit score, and draws out your debt, even though there is no limit to how much you can refinance. You may end up paying more than the car value if you refinance for a longer period. It will get worse if you do it more frequently.

Contact the current lender

Before contacting a new lender, try contacting your existing one. Refinancing your loan may be an option if you have improved your credit scores or are in good standing with your lender. It might be possible to refinance your auto loan on much better terms with your existing lender.

How can you improve your chances of refinancing?

Improve your credit score

Credit scores aren't the only factors to consider, but that doesn't mean they aren't important. Here are the five components of your credit score:

• History of payments
• Utilization of credit
• Credit history length
• Mix of credit
• Unspent credit

Although you cannot change the past and fix your credit history or erase late payments, there are other steps you can take.

Pay off your debts

Paying off other loans will improve this metric. You could pay down the principal of a personal loan balance to reduce your monthly obligations. It will improve your debt-to-income ratio.

Compare interest rates

It's unlikely that you bought the first car you saw when you walked into a dealership. Likewise, you are not bound to the first lender you find. You can find a lender who offers a better interest rate, a more flexible loan term, or even more accommodating terms.

Increase savings

Refinancing your auto loan should allow you to increase your savings. You can also save through a comparison feature, where Assurance helps compare car insurance quotes and saves you precious money. It will be helpful with unexpected expenses, whether personal, home, family, auto, major or minor, etc. A little extra cash can go a long way.

Bottom line

Taking the time to conduct some research could pay off if you have a bad credit rating and want to refinance your car loan. A refinance loan that meets your needs can be obtained by checking your credit, disputing errors, and talking to your current lender.