Can You Refinance A Car Loan With Bad Credit
Yes, several lenders offer auto loan refinance options for borrowers with bad credit. Some lenders don’t even have a credit requirement to get a loan.
When applying for these loans, watch out for high interest rates. Many loans for borrowers with poor credit come with high annual percentage rates that can add significantly to the cost of the loan.
When Will A Lender Refuse To Refinance A Car Loan
You may have been asking yourself, “Should I refinance my car loan?” but in some cases, the better question is, “Will a lender want to refinance my car loan?” There are some cases where they may not. It’s good to consider those cases before applying and potentially affect your credit score.
- The state of the car: Older cars or vehicles with a lot of mileage may not be considered for refinancing offers. Additionally, the age and mileage considerations may differ depending on the make and model of your car. It’s best to find out before you apply. Learn more about how car mileage impacts insurance.
- The value of the car: You may have heard the term “loan-to-value” ratio before. In this case, if the value of the vehicle is lower than the amount of the new loan you want, a lender is unlikely to approve a refinancing.
- The time left on your current loan: You want to refinance because it’s better for your finances. The lender wants to improve its finances, too! The closer you are to paying off your existing loan, the less likely a new lender will refinance it.
Best Online Refinance Loan: Lightstream
- Minimum credit score: Not stated
- Loan terms : 36 to 84 months
If youre looking to apply to refinance an auto loan online, LightStream is a great option. With low rates that reward borrowers with good credit, LightStream also features a fast online application and same-day funding.
0.5% discount with auto pay
No restrictions on make, model, or mileage
Online application only
LightStream offers competitive rates, a wide range of refinance options, and an entirely online process for refinancing. It also gets strong customer service ratings, receiving a top score in the J.D. Power 2020 Customer Lending Satisfaction Study.
- : As low as 2.49% with autopay
- Minimum loan amount: $5,000
- Repayment terms: 36 to 84 months
- Recommended credit score: Not disclosed
- Availability: All 50 states
LightStream, the online lending arm of SunTrust Bank, offers a completely online lending process. Borrowers can receive a direct deposit as soon as the same day. For those with excellent credit, LightStream offers some of the most competitive refinance rates available with a wide range of loan terms. There are also no major restrictions on the type of vehicle you can refinance.
Keep in mind that LightStream may do a hard pull on your credit right away when applying. Some lenders will let you see rates and details with just a soft pull. However, you can’t escape getting a hard pull if you want a loan, so it’s not a big difference.
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Can You Refinance Your Auto Loan With Your Existing Lender
The rules for refinancing an existing loan with the same lender vary by financial institution. PenFed Credit Union, for example, does not allow refinancing for cars already financed with the credit union. Other lenders do allow borrowers to refinance an existing loan.
Keep in mind that it may not always be beneficial to refinance with the same lender. You might find a better deal by refinancing with another institution.
How Do Ltvs And Dtis Affect My Loan
Your car is always depreciating. Edmunds.com notes that it can lose 15 to 25 percent of its total value during the first five years, and that can disappoint borrowers who realize their new loan terms reflect the current, depreciated condition of their cars instead of their original condition.
Many consumers fail to take this loan-to-value ratio into account. They think its a new car, but they dont realize there are a lot of things that affect the value, such as wear and tear, age and mileage, says Robert Janssen, sales manager with Innovative Funding Services.
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How Do You Find A Bank Or Lender Who Will Refinance Your Home And Auto Loans
To find a bank or lender who will refinance your home and auto loan at the same time, start by asking friends and family for recommendations. Its also a good idea to consult a national nonprofit, such as the National Association of Mortgage Brokers.
Bettencourt suggests searching NAMBs member database to find a bank or lender who would be open to this type of transaction. In addition, you can reach out to U.S. Bank and Bank of America as these are a few of the lenders who may allow you to refinance your mortgage and auto loan at the same time.
Why It Pays To Shop Around When You Refinance
If you care less about convenience and more about saving money, it definitely pays to check out refinancing options with other lenders. This takes time, but Pierce says its well worth it.
If you dont shop around, you wont know whether your lender is offering a competitive deal, she says.
Dont look at just interest rates, though, adds Anastasio. Also compare loan fees, loan repayment terms, and products to make sure the loan fits your needs and budget. In 2020, closing costs for a refinance averaged nearly $3,400, including taxes, according to ClosingCorp, a real estate data provider. Yet they can vary widely, from around 2% to 6% of your loan amount.
Also pay close attention to whether the loan comes with points, which are fees you have to prepay to get a lower interest rate. A mortgage point equals 1% of your total loan amount, and one point usually reduces interest rates by about 0.25%.
Having all the information, including lender fees and other costs, will help you decide if you should switch mortgage lenders, Pierce says.
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Compare Auto Refinance Loans
Before applying for an auto refinance loan, you should be sure to compare quotes from multiple different providers. Some factors to take into consideration include:
- Loan amounts: Most lenders have minimum and maximum loan amount requirements, usually somewhere between $7,000 and $100,000. Make sure that the loan you want to refinance is in between these limits.
- Rates: One of the main goals of refinancing an auto loan is to lock in lower rates. Make sure to compare rates from multiple different providers to ensure youre getting the best possible deal.
- Repayment terms: Whether you want to pay off your loan faster, or need a longer-term length with smaller monthly premiums, look for an auto refinance loan with repayment terms that meet your needs.
- Some lenders have minimum credit score requirements for borrowers. If your credit score isnt where you want it to be, consider holding off on applying until you raise your score.
- Car requirements: Not all lenders will issue auto refinance loans for all cars. Make sure that your car meets the requirements of any lenders that youre interested in.
Things To Watch Out For When Refinancing A Car Loan
Just like with any financial arrangement, it is important to keep your eyes out for red flags. Ensure that the lending agency is reputable and offers a reasonable interest rate. Make sure that you are dealing with a proven institution and be sure to read all the fine print. If you are unsure as to the meaning of a phrase, it is better to ask.
Take a look at the cost of refinancing the vehicle. Are there any upfront expenses? Are you going to be paying more down the line? If so, how much more? Make sure that you have all of the information above before making your decision. As always, avoid deals that seem too good to be true. Understand your rights and the responsibilities of the lender. Be certain that you are comfortable with the arrangement and that it is in your best financial interests.
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How Much Does It Cost To Refinance A Car Loan
The exact costs of refinancing will vary. Most auto lenders don’t charge application or origination fees, and auto loans don’t typically have a prepayment penalty. The most likely cost will be in terms of total interest if you extend the loan term, so be sure to review all terms on your current and potential new loan.
Is There A Right Time To Refinance
You can refinance an auto loan whenever you want as long as you qualify. In order to get approved to refinance a car loan, your credit score needs to have improved from when you took out the original loan. This means that you usually have to give yourself some time to accomplish this.
If your credit score is up, the next step is to check to see if you have equity in your vehicle. Equity is when your car is worth more than what you owe on the loan, and negative equity is when the vehicle is worth less. You typically can’t qualify if you are upside down, but you can always pay off any negative equity out of pocket in order to move forward.
Another requirement that has to be met are the lender’s age and mileage restrictions. Generally, lenders don’t refinance vehicles that are older than seven to 10 years old with more than 100,000 miles on them, but the specifics vary from lender to lender.
Additionally, in order to qualify, the loan amount you’re refinancing has to fall within the new lender’s acceptable limit, and you have to be current on your loan payments.
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Extending The Loan Term
The longer the loan term, the more you will pay in total interest over the life of the loan. While it may be tempting to focus only on securing a lower monthly payment, its best to balance that with maximizing your total auto refinance savings. Heres an auto refinance calculator to help you run the numbers.
When Does Refinancing Your Home And Your Auto Loan Together Make Sense
If your main goal is to get your monthly debt payments as low as possible, refinancing your home and auto loan together may be a good idea, said Evan Wade, co-founder of Philadelphia Mortgage Brokers in Philadelphia.
Wade explains that since this strategy can free up some cash, it may make sense if your financial situation has changed and youre looking for a way to reduce the amount of money you owe each month. However, he discourages his clients from going this route if possible because it usually means rolling your auto debt into your refinanced mortgage.
In most cases, I do not recommend refinancing your mortgage and auto loan simultaneously as doing so stretches a short-term debt into a very long-term debt that can end up costing you tens of thousands of dollars, said Wade.
Rick Bettencourt, board president of the National Association of Mortgage Brokers also believes that this type of transaction is not always a wise move, especially if youre able to finance your car with 0% interest.
Many auto dealers offer specials where borrowers with high credit scores can finance their vehicles with 0% interest. I always recommend leaving the car out of the refinance in situations like this, said Bettencourt. Like Wade, he says that refinancing your mortgage and auto loan at the same time only makes sense if you need to improve your residual income.
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Lower Interest Rates Available
If you have a chance to get a lower interest rate, refinancing might be advantageous. A lower interest rate could mean lower monthly payments, which could eventually save you money that you can use for other financial obligations.
Lenders look at several factors to determine an auto loans annual percentage rate . One of the most apparent aspects is your . If your credit score has improved since you took your first loan, you may qualify for lower rates when you refinance.
But if your credit isnt good, refinancing with a co-signer could help you get the best interest rates.
Refinance With A Cosigner
Refinance with a cosigner and leave it at that. Doing this could help if your purpose is to:
- Lower your auto loan payment
- Help the other person build credit
- Establish the other person as a co-owner of the car
Refinancing with someone could lower your car payment. You and your new cosigner may qualify for a lower APR and/or an extended loan term. By cosigning, both of you are legally responsible for the payments. On-time payments will positively affect both of your credit scores late payments will negatively affect them. If possible, dont extend your car loan for very long. A longer term means youll pay more in total interest over the life of the loan. Heres how to refinance your car in six steps.
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Preparation Is The Best Prevention
There are a lot of things to take into consideration the average consumer may not be aware of. A lot of times someone shows up who may not be experienced in financing, says Brian Server, assistant vice president of Consumer Lending at Evansville Federal Credit Union. They just want to drive off with the car and take the first offer.
Server suggests that borrowers do a bit of homework ahead of time and come prepared with questions for a potential lender. Its not quite the same as a mortgage, where you could lower your rate and have it be worth the closing cost, he said. In the case of a vehicle loan, if you can lower your rate and not be charged some fees, then theres no downside to look at refinancing.
Get All The Quotes On The Same Day
Interest rates fluctuate much like the price of stocks, which is daily. For an apples-to-apples comparison, get all of your quotes on the same day. With an online marketplace, the process is relatively easy because all of the lenders you find usually contact you the same day you make your online inquiry.
If you call around to local lenders, you may or may not get calls back that day. If thats the case, use the rate quotes you received on the same day for comparison purposes. If you call another lender on a different day, the market may have shifted and you wont be comparing apples-to-apples price quotes anymore.
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The Best Reason To Refinance: Pay Less Interest
The ability to borrow at a lower interest rate is a primary reason to refinance a loan. That lower rate means you pay less for your car after taking all of your borrowing costs into account. Because the interest rate is also part of your monthly payment calculation, your required payment should also decrease. As a result, managing your monthly cash flow becomes an easier task.
When you can replace your existing loan at a lower rate, its best to refinance as early as possible. Most auto loans are amortizing loans, which means you pay a fixed monthly payment with interest costs built into the payment.
Over time, you pay down your debt, but you pay most of your interest costs at the beginning of the loanso get that rate down sooner than later to start cutting costs. An amortization calculator can show you exactly how much you can save by refinancing.
Nerdwallet’s Top Auto Loan Refinancing Lenders
- RefiJet – Refinance loan: Best for comparing offers from multiple lenders
- RateGenius – Refinance loan: Best for comparing offers from multiple lenders
- LendingClub – Refinance loan: Best for applying directly with a lender
- MyAutoloan – Refinance loan: Best for comparing offers from multiple lenders
- Upstart – Refinance loan: Best for comparing offers from multiple lenders
- LightStream – Refinance loan: Best for applying directly with a lender
- Tresl – Refinance loan: Best for comparing offers from multiple lenders
- Autopay – Refinance loan: Best for comparing offers from multiple lenders
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Is It Easier To Refinance With My Current Lender
Can I refinance my car with the same lender? Can I refinance with a new lender? These kinds of questions are common among auto owners who are considering refinancing.
When you buy a car, you either shop around with different lenders for a loan or ask the auto dealer that you buy from to set up a loan for you. When you refinance, it is smart to engage in the same process of shopping around for the best possible option for you.
You are not locked into using the same lender that currently holds your loan. Your priority should be finding the most favorable loan terms possible, which typically means finding a lender that will offer you the lowest interest rate. In some cases, that may be your existing lenderin other cases, it will be a new lender. Rate shopping will give you a broader sense of the market and what constitutes a genuine deal.
While it may seem easier to stay with the same lender, any lender willing to give you a refinancing loan will work with you to make the process as seamless as possible. Theres no reason to be worried that switching to a new lender will make your journey with a loan more complex.
It Doesnt Make Sense For Everyone
Refinancing your auto loan makes sense if you can save money, but itâs not right for everyone. If youâre almost done paying off your current auto loan, refinancing to a loan with a lower rate wonât save you much money since youâve already paid most of the interest.
Lenders may also place some restrictions on refinancing. For example, some banks and other lending institutions wonât refinance your loan if your vehicle has above a certain number of miles or is more than ten years old.
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