When you're applying for a loan, your credit score is one of the first things the lender checks. A poor credit score results in high interest rates and poor terms. Unfortunately, a working vehicle is an absolute necessity for most people, and buyers are often forced to take on these burdensome loans just to get by. If you're suffering under the weight of your car payments, you might be able to take some of the pressure off by refinancing, even if you have bad credit.
Set Yourself Up for Refinancing
You were probably aware of the unfavorable terms of your auto loan when you signed up for it, but you didn't have other options at the time and needed a car regardless of the cost. If you have an auto loan with a high interest rate, you should prepare for refinancing as soon as you take out the loan. You shouldn't wait until the end of your loan to explore refinancing options.
If you want to refinance an auto loan with bad credit, one of the best things you can do is prioritize your loan payments. It will be easier to refinance your loan after you've made on-time payments on your current loan for a few months. This helps to prove your credit worthiness, making other lenders more likely to take you on. Start looking for refinancing options as soon as possible because many lenders recoup interest on the front end of the loan.
Understand How Your Credit Score Works
The loan application process for your current auto loan probably revealed your credit issues, but you may still find that you're unclear on what all those numbers mean. If you know how to improve your credit score, you can boost it by a few points before you apply for your refinancing, increasing your chances of getting a better deal the second time around. If you're trying to refinance an auto loan with bad credit history that goes back for years, you may feel helpless to improve the situation. However, there are many things that will improve your credit score:
- Make all loan and credit card payments on time. If forgetfulness is causing late payments, set up automatic payments online.
- Pay more than the minimum required on your credit cards and other loans. The minimum payment typically covers interest and only a small amount of the balance.
- Focus on the card with the highest interest rate and put as much as you can afford into paying down the balance.
Research Your Options
Auto lenders know that car buyers are often in a hurry to get a new vehicle so they won't miss work. If your previous car broke down, you may find yourself shopping for a new vehicle unprepared and taking the first deal you're offered. When you're refinancing, you have more time on your side. Research several auto loan services and apply only to the top contenders. Take some time educating yourself about the interest rates and terms available from different lenders so you can choose the best one.
Do All the Math
Look beyond the interest rate on your loan to determine how much you're saving. Your lender may charge an early termination fee for refinancing the loan with a new institution. You may have a title fee for changing the title as well. Factor these into the overall cost of the loan to make sure you come out ahead.
Refinancing an auto loan is faster and easier than many people think. If your current auto loan has an unreasonably high interest rate, explore your options for refinancing so you can start saving money as soon as possible.