If you’ve been struggling to make your monthly car payments, you may be considering refinancing your car loan. This is often an effective way to lower your payments and add cash to your monthly budget.
But what if you have a bad credit score? You may be wondering if auto refinance is still possible. The good news is that you absolutely can refinance a car loan with bad credit. Even with a low credit score, you may be able to receive better terms that will save you money over the lifetime of your loan.
Is There a Minimum Credit Score Needed to Refinance a Car Loan?
Car loan refinance is often an effective cost savings solution for individuals with bad credit since there are certain lenders that will offer refinancing to people with credit scores considered fair or poor. While you typically need a minimum credit score of 700 to qualify for the best interest rates and a score between 660-700 to unlock standard interest rates, you can still potentially secure a lower rate than you’re currently paying even if your credit score is below 660. This will result in financial savings over the lifetime of your loan.
Lenders consider a variety of factors – in addition to your credit score – when determining your eligibility for auto refinance. These include:
Income – Your income plays an important role in your ability to make your car loan payments. If you have a high income, it will improve your chances of getting approved for auto refinancing, even if you have bad credit.
Debt-to-income ratio – Your debt-to-income ratio consists of the percentage of your monthly income that is already committed to paying off other debts. The lower your debt-to-income ratio, the more likely you are to qualify for refinancing.
Loan-to-value ratio – The loan-to-value ratio refers to the cash value of your vehicle compared to the amount owed on your loan. If your vehicle has retained its value well, you most likely owe less on your loan than the vehicle is worth. This will result in a lower loan-to-value ratio, which improves your chances of getting approved for car loan refinance.
How to Refinance a Car Loan with Bad Credit
Even with bad credit, scoring favorably in the factors listed above can help improve your chances of getting approved as well as potentially unlock slightly better loan terms. That being said, it may also be worthwhile to take some steps to boost your credit score before refinancing your car loan.
Review your credit reports for errors – It’s common for your credit reports to contain incorrect information which may be negatively impacting your credit score. Request a copy of your credit report from each of the three major credit bureaus and review the information to ensure it’s accurate. If not, you can dispute the errors to have them removed, providing an easy way to raise your credit score.
Make all payments on time – Payment history is the most important factor impacting your credit score. Make sure to make all your monthly payments on time, since this will potentially improve your credit score over time.
Lower your credit utilization – Credit utilization, the percentage of your allowable credit lines in use, is the second most important factor impacting your credit score. Pay down high balances and/or request increases in your credit limit to try and get your credit utilization below 30%.
Limit requests for new credit accounts – Every time you request a new credit account, it results in a hard pull on your credit report. These hard pulls can temporarily lower your credit score, so avoid trying to open new accounts until you’ve refinanced your car loan.
Keep old accounts open – Keeping old, unused credit accounts open can positively impact your credit score. Not only do they establish a longer credit history, but they also help keep your credit utilization down.
Once you’ve taken these steps to raise your credit score as much as possible, it’s time to start the refinancing process. Make sure to compare lenders to ensure you select the loan option with the best possible terms for your goals. When you work with iLending, we’ll compare rates for you, giving you peace of mind that you’re achieving the best possible outcome when you refinance your car loan.
Benefits of Refinancing a Car Loan with Bad Credit
You can experience a variety of benefits when you refinance a car loan with bad credit:
Lower your interest rate – In most instances, you should be able to lower your interest rate when you refinance your car loan. While bad credit may impact the extent to which your interest rate drops, you will most likely be able to secure a lower rate even when your credit score isn’t great.
Lower your monthly payments – There are several ways you can lower your monthly payments when you refinance. If you secure a lower interest rate, it will typically lower your payments when you maintain the same loan term. You can also extend the loan term to lower your monthly payment, but in this scenario you may pay more money over the lifetime of the loan due to increased interest accrued.
Skip 1-2 monthly payments – In many instances, you have the ability to skip 1-2 monthly payments as part of the refinancing process. You can use this extra money to pay down additional debt.
Improved future loan eligibility – As you repair your credit score, you will have an easier time getting approved for future loans, and you will most likely be able to secure better interest rates for these loans.
iLending Makes Car Loan Refinancing Easy and Hassle Free
If you’re ready to refinance your car loan, iLending can help Our exclusive You First Approach™ makes refinancing easy and hassle free. You’ll work with one of our personal loan consultants who will discuss your goals in detail. Then, your loan consultant will compare loan options from our vast network of over 50 nationwide lenders to identify the best loans that align with your stated goals. Your loan consultant will review these options with you, answering any questions you may have, and then recommend the best solution to address your unique needs. You’ll receive assistance with the application process to ensure it is completed correctly, and your loan consultant will also make sure your existing loan is paid off properly.
On average, iLending customers save $145 per month when they refinance with us. This monthly savings can be extremely helpful when your budget is spread thin, and it can help you pay off other debts in order to repair your credit score over time.
Apply now to get the car loan refinance process started.
What would you do with an extra $133* in your pocket?