After you have been approved for an auto loan,
it is easy to forget that there is still a plethora of options available to you. Just because you have succeeded in the initial loan application process does not mean that you are locked in to paying the same APR for the remainder of the loan term. Even if you have poor credit,
you may be eligible for refinancing your car.
What Is Refinancing?
When you refinance your auto loan,
you are essentially selling your loan to another lender. This lender will pay off the balance of your existing auto loan. Once the loan has transferred,
you will then make payments to the new lending institution. The difference is in the APR-instead of paying the interest rate that you were assessed when you first bought the car,
your interest rate will go down. This will lead to lower monthly payments and thousands of dollars in savings.
Refinance my Car with Bad Credit and a low APR
If you purchased your car when your credit score was considerably low,
you most likely were assessed a high APR. Individuals with credit scores below 680 are most often charged outrageously high interest rates,
sometimes above 20%. Such a high APR is unnecessary,
especially when there are those who bought the same car at interest rates of 5% or below. However,
such a low interest rate is rarely possible unless the borrower has a credit score that is above 680.
Who Should Refinance?
If the APR on your auto loan is above 3%,
you can benefit from getting a bad credit auto refinance. Many wonder how this is possible when they were previously assessed a high APR as a result of their bad credit. The good news is that a borrowers credit improves after making their loan payments on time. Your image as a borrower automatically begins to improve when you have made your payments on time for at least 6 months.
It is easier to refinance than it is to be approved for an initial auto loan. If a borrower has bad credit,
they will almost certainly face a challenge when first attempting to be approved for an auto loan. This is because they pose a high risk for the lender. When refinancing,
the process is simpler. The fact that you were approved and have made prompt minimum payments to your first lender looks good to possible future lenders.
Refinance Car Loan: Bad Credit
Before you consider a bad credit auto refinance,
make sure you have been making timely payments to your current lender. A borrower who has missed payments,
paid less than the minimum amount,
or been late will have little chance at refinancing.
The first step to obtaining a bad credit auto loan refinance is to research your current loan. Contact your current auto loan lender and ask for the remaining balance on the car. You can also find this information on your latest statement.
Research your car online to find out how much it is worth. All cars,
even if they are not used,
depreciate the moment they have been driven off the lot. Thus,
the cars net worth will most likely be a considerable amount less than the ticket price at which you bought it. Lenders will not approve a bad credit auto loan refinance if the cars worth is below the remaining loan balance. If you still owe an amount that is greater than the cars net worth,
you will need to continue to make your payments until the cars value is greater than the amount you owe.
Compare different lenders. It is wise to choose a sub-prime lender versus a prime lender. These lenders are more apt to approve a borrower who is high risk. Research the terms and interest rates carefully- a bad credit car refinance with a low APR in is the ultimate goal.