Refinancing your car is easy when you have an excellent credit score and payment track record. Most lenders will approve your application readily. Lenders are always on the lookout for such borrowers.
The problem arises when you have bad credit and late payments. Most lenders will not approve your refinance application then.
Can you refinance your car loan then as well?
Yes, you can do so. Not only is it possible that, but there are multiple ways in which you can do so. We will cover these ways below. Once you go through the numerous methods to refinance your car loan despite bad credit and late payments, it will become easy for you to refinance your loan.
- How To Refinance A Car Loan With Bad Credit?
- Tips For Refinancing Car Loan With Bad Credit
- When Does It Make Sense To Refinance Your Car Loan?
How To Refinance A Car Loan With Bad Credit?
There are essentially 3 ways to refinance your car loan with bad credit and late payments. These are negotiating with your lender, shopping around for offers, and improving your credit score.
We will go into the details of all of these methods below.
Method 1: Negotiate with the lender
The 1st option which you have to consider is to negotiate with your current lender. This might not be an easy thing to do because of late payments and a bad credit score.
However, you have to explain to your lender why it has happened in the past and why it will not happen in the future.
When you get refinancing, the car payments will go down, and therefore it will become easier for you to pay on time. This is a great selling point for the lender to approve your refinancing application.
While negotiating, you have to highlight this point.
If you have any proof of an increase in income or increase in assets, you can undoubtedly furnish those. Once you furnish those, it will indeed become easier for you to get approval for refinancing.
Before you negotiate with your lender, there are a few tips that you need to follow.
- If you have an offer from another lender, you have to show it to your existing one. It will likely increase the chances of getting the refinance.
- You have to always look out for the promotions and the deals which your current lender is running. If there is any such promotion, it becomes easier for you to get your car loan refinanced.
- You should have all the documents in order before you negotiate with your current lender. Doing so ensures that you can convince your lender.
When you follow these tips, despite your bad credit and late payments, the chances of refinancing your car loan increase manifold.
Method 2: Get quotations from multiple lenders
When you have a bad score and late payments to your name, many lenders will not consider your refinancing application. That, however, does not mean that no lender will approve it.
You do not have any other option but to get quotations from multiple lenders in such a case. When you get such quotes from numerous lenders, you will easily negotiate and find a better deal.
You might be thinking, won’t that lower my credit score further?
The way to avoid this is to disclose your credit score and credit report to the lenders in advance. Those lenders won’t forward your application unless it is likely to get approved.
Every time your refinancing request gets rejected, your credit score can further reduce by a couple of points. If you present your credit report to the lender in advance, it will undoubtedly become easier for you to avoid this.
Only the lenders who are confident that your application will get approved will forward your application. In that case, you will not have to worry about each application reducing your credit score by a couple of points.
With this method’s help, it is indeed very easy for you to refinance your car loan.
Method 3: Improve your credit score
The 3rd method which you can opt for is to improve your credit score. It is the most obvious method. When your score is temporarily down, or you have missed just a single payment, it becomes comparatively easier for you to improve your credit score.
In cases your credit utilization is high, you can certainly bring it down as well. This will take a handful of months.
Once you take care of your finances, your credit score can improve drastically.
In that case, applying for a car refinancing can certainly seem like a good idea.
Most lenders will approve your application in that case, even with a couple of late payments in the past.
If you’re not in urgent need of refinancing your current car loan, this is the method which you can opt for.
Essentially, you have to choose between these 3 methods when you’re looking to refinance car loan with bad credit and late payments. There are, however, a few tips that you have to keep in mind when refinancing your car loan. We will highlight these tips below.
Tips For Refinancing Car Loan With Bad Credit
1) Wait for some time
If you have been late on a payment recently, it isn’t easy to refinance your car loan. In that case, the only solution which you have is to wait it out.
Only when you have had a string of timely payments can you go ahead and opt for the refinancing.
No lender will approve your application if you had a missed car payment last month.
You have to keep this factor in mind before you apply for car refinancing.
2) Check the terms and conditions carefully
When a lender approves your application, you have to check the new loan’s terms and conditions pretty carefully.
Firstly, you have to look at the interest rate. Only when it is compatible should you opt for a refinancing loan.
You have to also look at the late payment charges and other penalties. You have to look at the processing charge, legal charge, and other such charges. Only when refinancing is affordable can you go with that lender.
Any other penalties, levy, surcharges should be taken into account as well.
Only when you’re okay with the terms and conditions of the car financing loan can you go ahead and opt for it.
3) Check lender history
Often, lenders prey on individuals who do not have a proper credit score and have been late on payments. They rely on the penalties, levies, and other such charges to make up for the risk. Their charges are excessive.
When you check the lender history, you can easily understand whether the lender follows the industry practices or not.
Merely looking at the lender’s reviews will let you know whether you should opt for this lender or not. Rather than choosing the 1st lender who approves your car refinancing application, it is a good idea to check the lender’s history in detail. Only once you research the lender can you go ahead and opt for it.
These are the 3 tips that you should always follow when you’re opting for a car refinancing loan.
Before you refinance your car loan with bad credit and late payments, it is essential to find out when you should go for car refinancing.
We will highlight a few scenarios below in which it will make complete sense to refinance your car loan.
When Does It Make Sense To Refinance Your Car Loan?
The scenarios in which you can go for refinancing include:
Adding or removing a cosigner
Many times, you might need to add a new cosigner or remove a cosigner. In that case, refinancing your car loan makes sense as well.
Adding a cosigner ensures that you can get more favorable terms. Since you have late payments and have a bad credit score as well, when you introduce a cosigner who has good credit, refinancing can undoubtedly become easier for you.
Many times, your current cosigner might not be willing to take any further liability. In that case, you need to release them from the loan.
When you’re doing so, it is possible to refinance your loan as well.
These 2 are ideal cases when you need to think about refinancing your car loan.
Need for lower car payments
If you have bought a car at the peak of the interest rate cycle, your car loan payments will often be on the higher side. Moreover, it might so happen that you have paid your car payments at least for a couple of years as well. In that case, you might have undoubtedly paid some amount of principal.
In both these cases, your car payments will remain the same. Since you are late on payments, it is evident that you cannot pay the higher car payments.
What if you could lower your car payments?
Refinancing can undoubtedly provide you with that option. If done right, it can help you lower the car payments and aid your repayments.
Once you opt for refinancing, your new lender will pay off your current loan. Since the amount which the lender will pay off will be lesser than the amount you borrowed at the start, your car payments will be lower.
Lower car payments ensure that you are never again late on payments. Not only that, since you will be paying those payments on time, it will become easier for you to improve your credit score.
Thus, it is another reason why you should think about getting a refinance on your car loan.
To get a better deal
When you want to buy a car desperately or buy your dream car, you will hardly look at the terms and conditions. In doing so, you might commit a mistake.
The lender might have lent to you on unfavorable terms. When that happens, you’re likely to end up paying much more if you continue with the loan.
Over some time, other lenders might take your track record into account and allow you to refinance your loan. The advantage here is that the other lenders might not offer you better terms and conditions.
In a nutshell, when you’re refinancing your car, you’re likely to get a much better deal from the new lender.
Many lenders also provide you with the promotional introductory interest rate when you refinance your car. It means that for the 1st few months, the amount you will pay will be even lower.
It is another reason why you should think about refinancing. Refinancing can undoubtedly help you get a better deal. There won’t be the risk of predatory interest rates.
Ability to get lower interest rates
Another viable reason to get a refinance is to get the benefit of lower interest rates. Many times, when you buy a car, the interest rates get locked in. Moreover, if your credit score is not up to the mark, the company might offer you a higher interest rate. It translates into higher car payments each month.
Paying a higher interest cost means that your car will be much more expensive in the end.
When you’re switching over to another lender amidst a low-interest regime, it will become easier for you to reduce your car payments. The overall amount which you will pay as interest will also be on the lower side.
Rather than doing it for the sake of it, it is a good idea to 1st judge the reason why you want to refinance and after that go for it. Only when the reason is viable should you go ahead with refinancing. Also, you will have to explain the reason for refinancing to the lender.
So, you can indeed refinance your car with bad credit and late payments. Using the guide above, you will know exactly how to do so. We aim to help you get out of the car loan debt which you are facing.