How to Refinance a Car Loan With Bad Credit
Whether you want to lower your monthly payment or lower your interest rate, auto refinancing is a popular solution to explore. But is refinancing possible if you have bad credit? Read on to learn if refinancing is the right path to take in your current situation, how you can make it work for you in the future, and what other options are available to you.
Auto refinancing involves taking out a new loan to replace an existing loan on a vehicle. It involves signing a new agreement with a new interest rate, term, and monthly payment.
Refinancing is an attractive tool for many as it can save you money—in the right circumstances.
- If you want to refinance at a lower interest rate, it helps if you have a better credit score now than when you originally signed papers for your auto loan.
- If you want to refinance at a lower monthly payment, you might be able to extend your term, but only if the original term was short and your vehicle is still relatively new and in good condition.
Pro tip: When considering extending your term, know that you’ll be paying more interest the longer you stretch out the payments, so think carefully before adding months to your loan.
If refinancing is the goal, there are options, but the first thing you should do when you want to get bad credit off your back is to get familiar with your credit report.
Check your credit report
If you have bad credit, make sure you understand why. Download your credit report for FREE and get familiar with your credit profile.
Check for any errors. Wishful thinking perhaps, but mistakes do happen and any inaccuracies may negatively impact your credit score. If you do notice any mistakes, make sure to report the errors to the credit bureaus, and they’ll amend your profile within 30 days. Who knows? The boost you receive might be enough to help you secure a better deal on your new loan agreement.
If the details of your credit report are accurate, your long term focus should be on improving your credit rating. Fortunately, there are fast ways to raise your credit score.
Add a cosigner
Even if you do everything right, waiting for your credit rating to improve can be an exercise for thumb twiddlers. You need a money-saving solution today!
Adding a trusted friend or family member to the loan agreement is one solution that could help. Since this co-applicant is assuming responsibility for the car loan payments if you default, it lowers the level of risk for the lender. And less risk for the lender might mean better interest rates for you!
Think about trading in
Life happens and sometimes unexpected circumstances can make it difficult to honour our financial commitments.
If you have bad credit, drive an older vehicle, or are struggling to make your car loan payments, trading in your vehicle for something more affordable might be the way to go. Many people are surprised to discover that they can be driving a nicer, newer vehicle with lower payments.
Connect with a lender that knows how to help
Not all lenders are created equal, and you don’t have to refinance with your original lender. Today, there are service providers that can connect you with the lenders and dealerships that understand your situation.
Maybe you had good credit when you originally signed the dotted line but your financial situation has worsened since then. In this circumstance, your original lender might not be equipped to help you. Maybe you had bad credit (and still think you have bad credit). There may be new options that didn’t exist when you first got your vehicle loan. Or maybe you have been making some positive steps to improve your credit situation and now qualify for better terms.
Whether you choose to trade-in your vehicle for something more affordable or refinance for a lower monthly payment or interest rate, Canada Drives can connect you with the most attractive options. See what you're eligible for today!
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