Refinancing A Car With Bad Credit: What You Need To Know

refinancing a car with bad credit

Refinancing a car with bad credit can be a daunting task, but it’s not impossible. By taking the right steps and understanding your options, you can potentially save money on your car loan and improve your credit score in the process.

Problem: Why Refinancing with Bad Credit is Difficult

Having bad credit makes refinancing a car loan more challenging because lenders see you as a high-risk borrower. This means they are more likely to charge you a higher interest rate, require a co-signer, or deny your application altogether. Additionally, if you owe more on your car than it’s worth, you may not qualify for refinancing.

Solution: How to Refinance a Car with Bad Credit

Here are some steps you can take to increase your chances of refinancing a car with bad credit:

1. Know Your Credit Score

Before you start shopping for a new loan, it’s important to know your credit score. You can get a free copy of your credit report from each of the three major credit bureaus once a year at Knowing your score can help you understand what interest rates you may qualify for and identify any errors on your report that may be hurting your score.

2. Shop Around

Don’t settle for the first offer you receive. Shop around and compare rates from multiple lenders, including credit unions and online lenders. Be sure to read the fine print and understand any fees associated with the loan.

3. Consider a Co-Signer

If your credit score is too low to qualify for a loan on your own, consider asking a family member or friend with good credit to co-sign on the loan. Keep in mind that if you default on the loan, your co-signer is responsible for repaying it.

4. Improve Your Credit Score

If you can’t find a lender willing to refinance your car loan, consider taking steps to improve your credit score. This may include paying down debt, making on-time payments, and disputing any errors on your credit report.

5. Consider a Secured Loan

If you own a home or have equity in another vehicle, you may be able to use it as collateral for a secured loan. This can help you qualify for a lower interest rate, but keep in mind that you’ll be putting your assets at risk if you can’t repay the loan.

6. Negotiate with Your Current Lender

If you’re struggling to make payments on your current loan, consider contacting your lender to see if they are willing to work with you. They may be willing to lower your interest rate, extend your loan term, or offer other options to help you stay on track.

Success Story: How One Borrower Refinanced with Bad Credit

After falling behind on her car payments, Sarah’s credit score had taken a hit. She was worried that she wouldn’t be able to refinance her car loan and would be stuck with a high interest rate. However, she did her research, shopped around, and ultimately found a lender willing to work with her. By refinancing her car loan, she was able to lower her monthly payments and improve her credit score over time.

FAQs: Common Questions About Refinancing a Car with Bad Credit

Can I refinance a car with bad credit?

Yes, it’s possible, but it may be more challenging and come with a higher interest rate.

How much can I save by refinancing my car loan?

It depends on your current interest rate, loan term, and credit score. Use an online calculator to estimate your potential savings.

Will refinancing my car loan hurt my credit score?

It may cause a temporary dip in your score, but over time, making on-time payments can help improve your credit score.

Can I refinance my car loan with the same lender?

Yes, but it’s still important to shop around and compare rates to ensure you’re getting the best deal.

How long does the refinancing process take?

It varies by lender, but the process can take anywhere from a few days to a few weeks.

Do I need a down payment to refinance my car loan?

It depends on the lender. Some may require a down payment, while others may not.

Tips: How to Improve Your Chances of Refinancing with Bad Credit

Here are some additional tips to help you increase your chances of refinancing a car with bad credit:

  • Make on-time payments on your current loan
  • Pay down debt
  • Dispute any errors on your credit report
  • Consider a co-signer
  • Shop around for multiple offers


Refinancing a car with bad credit can be challenging, but it’s not impossible. By understanding your options, shopping around for multiple offers, and taking steps to improve your credit score, you can potentially save money on your car loan and improve your financial situation in the long run.