How to Refinance an Automobile Loan With Bad Credit
You often have to agree to pay a high interest rate to finance a car when you have bad credit. It might be your only option if you need transportation and don't want to rely on other modes of transportation. Lenders who finance high-risk customers want extra compensation for the risk. The Car Buying Tips website says refinancing should be your priority as soon as possible. You may not be able to refinance as quickly as you would like, but it can be done if you're willing to focus on improving your credit.
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Instructions
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Make all of your payments on time every month for at least six months. Don't just focus on your car payment at the expense of your other bills. FICO, the largest credit score company, explains that your overall payment history heavily influences lenders. They look at all your accounts, including your car loan, credit cards and any other outstanding accounts.
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Review your credit reports and contest errors. Your Equifax, Experian and TransUnion reports might have inaccurate negative information that will hurt your refinancing efforts. Bob Sullivan of MSNBC says that up to a quarter of consumer reports have such mistakes. The Federal Trade Commission advises that you are entitled to free credit reports every 12 months from annualcreditreport.com and that you can dispute errors you find. The errors will be investigated as required by the Fair Credit Reporting Act and removed if your dispute is warranted.
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Apply for a new automobile loan with a lower interest rate. Philip Reed, a senior consumer advice editor on the Edmunds automotive site, explains that a lower rate can save you thousands of dollars on a loan. Start with your current bank or credit union, as your existing business relationship might give you an edge for approval. Expand your search to online sites like Bankrate if you a local lender rejects your loan application, Reed said.
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Make on-time payments. Try to refinance your car loan again in a few months if your first attempt is denied. Don't fill out too many applications within a short time frame because FICO warns that numerous lender inquiries can lower your credit score. This will further hinder your refinancing efforts.
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Tips & Warnings
Some lenders, especially those who deal with people who have credit problems, charge penalties for early car loan payoffs. These fees are written into the contract. Compare the penalty amount with your potential refinancing savings. Car Buying Tips states that refinancing is usually the better financial option for the long term.
