Refinancing a car loan with a bad credit score is very similar to getting a car loan with a different credit score. But with more limited options for lenders and even fewer options for lenders with reasonable rates on bad credit car loansyou may need to do a little more leg work.
1. Check your credit score
The first step to refinancing a car loan with a bad credit score is to confirm whether you actually have a bad credit score. If it’s been a while since you checked yours, it may have changed either way. Knowing your credit score can give you a realistic idea of the rates you are likely to receive and what your options are.
You are entitled to a free credit report once a year through one of the three major credit reporting agencies – Equifax, TransUnion or Experian. Today, however, many banks, credit unions, and credit card companies offer free credit score updates to their customers.
If you want regular access to a more detailed credit history, you can also pay to subscribe to a credit reporting service. This can help you identify and resolve concerns on your credit report.
2. Find a refinancing lender that works with bad credit borrowers
After you get a good idea of your credit situation, the next step to getting new financing is to find companies that will refinance your bad credit car loan. Luckily, you have a few places to look.
Where can you find bad credit refinance car loans?
Refinancing car loans is a popular financial product. That means you can find them with a number of different types of lenders, even if you have bad credit.
These are the main types of lenders:
- Traditional banks: Brick-and-mortar banks are still a popular source for auto refinance loans. Credit requirements vary by institution, but some banks are willing to work with borrowers with bad credit.
- Credit Unions: Credit unions are similar to banks, but are owned by members rather than for-profit companies. As a result, credit unions can offer better rates and refinancing options for those with lower credit scores.
- Online lenders: Online lending institutions have lower operating costs than traditional banks and may be able to offer lower rates as a result. The number of these types of lenders – usually backed by larger banks – means that some specialize in different types of borrowers, including those with low credit scores.
- Car loan brokers: Instead of going directly to a lender, you can work with a broker who will shop around to refinance car loans for you. These companies usually operate online.
- Lending Marketplaces: The marketplace model allows borrowers to enter their details and receive offers directly from providers. This allows people to easily compare multiple refinancing offers.
3. Shop around for your best options
Our team recommends borrowers get and compare multiple financing offers. When it comes to finding the best companies to refinance a car loan for bad credit borrowers, the differences can be significant.
People with bad credit scores can sometimes be desperate for financing options. Some lenders take advantage of that fact and offer sky-high interest rates to those borrowers. But not all lenders act this way. Some do offer rates that, while higher than those for good borrowers, are still reasonable. Comparing a few quotes can help you find the best rate for you and your credit situation.
Will applying for multiple bad credit refinance car loans hurt my credit score?
It is true that applying for any kind of loan – including refinancing a car loan – requires a hard credit investigation. This will likely cause your credit score to drop a bit. That part is unfortunately unavoidable.
However, credit bureaus now weigh multiple hard credit checks for the same type of loan the same as just one within a short period of time. That means there is no additional impact on your credit score to get multiple loan offers from different lenders compared to getting just one.