If you’re paying too much interest on your car loan, you may be able to use refinancing to get a lower rate — even if you have a less-than-stellar credit score. Finding a refinance lender isn’t always easy if you have bad credit, but that doesn’t mean it’s impossible.
These days, a number of lenders offer special provisions to help those with poor credit obtain a new loan that works for their budget. Some lenders accept borrowers with credit scores down to 550. Others have no minimums at all. So, while your final rate may be slightly higher than what you’d get with good credit, you could still secure a refinancing deal that helps you save hundreds of dollars in interest over the life of the loan. Here’s what you need to know to refinance a car loan with bad credit.
You can refinance a car loan with bad credit, but the terms may not be as favorable. For that reason, these refinance loans are often called “subprime loans.”
If you have a credit score of 550 or higher, you’ll likely qualify for a subprime refinance loan with a variety of lenders.
In general, the lower your credit score, the higher your interest rate will be.
You may want to work on improving your credit score before you apply for a refinance.
Can you refinance a car with bad credit?
It is possible to refinance a car loan with bad credit. That said, lenders almost always perform a credit check before they issue a new loan, and they tend to prefer borrowers with credit scores above 650. If yours is below that, it may be challenging to find a lender willing to work with you. Even if you do find one, you may be subject to higher interest rates. For that reason, loans available to those with poor credit are usually referred to as “subprime” loans.
However, if national interest rates have fallen since you took out your loan, you may still be able to get a better rate with a refinance. That could either lower your monthly payment or save you money in interest charges. But you may have to do some extra legwork to make it happen –– either by finding a lender willing to work with you, or improving your credit score before you apply. Here are some lenders that will let you refinance a car loan with bad credit.
Lenders that refinance car loans with bad credit
2.24% APR, 36-84 month term, 560 minimum credit score
With iLending, you can refinance cars, RVs, and even boats as long as your FICO score is at least 560. The company will refinance vehicles produced in 2011 or later and with up to 200,000 miles on the odometer. You’ll need at least a $7,500 balance left on your loan to apply.
iLending’s annual percentage rates (APRs) start at 2.24%, which is on the lower end for refinance loans. (Keep in mind that your rate will likely be higher if you have bad credit.) iLending doesn’t charge a loan application fee for refinancing, and it allows borrowers to file joint applications.
4.99% APR, 48-84 month term, 620 minimum credit score
To qualify for the best rates with Caribou, you’ll need a minimum credit score of 740. However, you can still refinance with this company as long as your credit score is at least 620 (and you don’t mind slightly higher interest rates). Your vehicle must have no more than 85,000 miles on it, and you’ll have to pay a $399 processing fee.
Keep in mind that these loans are not available in all states. To qualify for a Caribou loan, you cannot be a resident of Maryland, Massachusetts, Mississippi, Nebraska, Nevada, Wisconsin, or West Virginia.
3.49% APR, 24-84 month term, 500 minimum credit score
RefiJet is a service that matches borrowers with appropriate lenders. All you have to do is submit a single application, and RefiJet will prequalify you for several loans at once. This will give you accurate rate information for each lender and allow you to compare potential loan offers side-by-side. However, the convenience does come at a cost. RefiJet charges $395 for each application it processes. The good news is that applying for prequalification quotes will not impact your credit.
4. Auto Approve
2.94% APR, 12-84 month term, 580 minimum credit score
Auto Approve is similar to RefiJet in that it acts as a bridge between borrowers and lenders. Once you fill out an application, Auto Approve will do the work of applying and prequalifying you for various loans. You’ll receive prequalification quotes from several different lenders in as little as a few seconds. You can then decide which refinancing option is right for you.
Auto Approve doesn’t charge an upfront fee, but you may have to pay origination fees or other charges associated with your final loan. With Auto Approve, you’ll also have the option to add co-signers and vehicle protection options.
5.44% APR, 550 minimum credit score
LendingArts will work with you to find the lowest possible rates based on your income, credit score, and vehicle’s condition and age. The company accomplishes this by partnering with credit unions, which tend to offer lower rates and more flexible terms than larger financial institutions. LendingArts currently advertises a 5.44% APR for qualifying borrowers and requires a minimum credit score of 550. To work with LendingArts, you’ll need to fill out the application form on their website, which will ask for details about you and your vehicle.
4.29% APR, 36-72 month term, No minimum credit score
RateWorks specializes in lending to borrowers with bad credit. The company’s APR offers begin at 4.29%, but rise to 8.09% for those with credit scores below 620. That said, RateWorks doesn’t have a minimum credit score requirement. That makes it a great choice for those struggling to find a refinance lender elsewhere.
Most of RateWorks’s loan terms range from 36 to 72 months. The company won’t charge you any closing costs or fees when you take out a new loan. However, its loans are only available in 22 states, as listed on their website.
7. Gravity Lending
5.34% APR, 24-96 month term, 580 minimum credit score
Like many of the companies on this list, Gravity Lending uses borrowers’ personal details to pair them with a variety of financial institutions and online lenders. The company charges no fees, which is a major perk.
To work through Gravity Lending, you’ll need to have at least a $10,000 balance remaining on your old loan. If you have a credit score of 750 or above and a vehicle produced in 2018 or later, you’ll likely qualify for the best loan options. If your car was purchased before 2012, however, Gravity Lending won’t be able to help you refinance.
Representative example: If you borrow $15,000 secured by vehicle title, for 60 months at 5% APR (annual percentage rate) the monthly payment would be $283.07. Total interest paid would be $1,984.11. Your actual rate and payment amount may vary as determined by your collateral, down payment, term, loan amount, state sales tax, registration fees, and credit qualifications.
How to improve your credit for refinancing
Even if your credit score isn’t good enough to qualify for lenders’ best auto loan rates, that doesn’t mean you can’t refinance. It may just mean you have to do a little work to improve your credit score before you can get out of your current loan. Here are some easy ways you can make an impact on your credit in a relatively short period of time.
Reduce your credit utilization ratio
Credit utilization, or the proportion of your available credit that you're using, can account for nearly a third of your credit score. Aim to keep your credit utilization ratio below 30% — or, ideally, below 10%. Try to avoid maxing out your cards and work to pay down high credit card balances. It may also be helpful to request a credit limit increase from your card issuer, but only if you won't be tempted to overspend.
Diversify your credit mix
New lenders like to see that you can manage different types of credit responsibly. Your credit mix, which includes revolving credit (e.g. credit cards) and installment loans (e.g. mortgages, car loans, and student loans), contributes to 10% of your credit score. While you shouldn't take on new debt solely to improve your credit mix, consider diversifying your credit portfolio if it makes financial sense for you.
Limit hard inquiries on your credit report
Applying for new credit accounts triggers hard credit inquiries on your credit report, which can lower your score by a few points each. If you apply for a number of credit accounts in a short period of time, these hard inquiries can stack up, significantly lowering your score. So, if you recently applied for a personal loan or a new credit card, for example, you might want to wait for your credit score to recover before you apply for a refinance. You can keep track by viewing your credit score at annualcreditreport.com.
Keep old accounts open
Your credit history length, which accounts for 15% of your credit score, is determined by the age of your oldest account, the age of your newest account, and the average age of all your accounts. Closing old accounts can shorten your credit history and potentially lower your score. As long as there are no annual fees, consider keeping your old accounts open and active to maintain a longer credit history.
Dispute errors and monitor your credit regularly
By regularly monitoring your credit, you'll be able to track your progress and quickly address any issues that arise. Many banks, credit card issuers, and personal finance apps offer free credit score monitoring services. Use these tools to stay informed and proactive in managing your credit. And if you see any suspicious charges or errors, like a line of credit you don’t recognize, report them as soon as possible.
Use a credit-building service
There are some bills you don’t typically get credit for paying on time. These include utility bills, rent, and even payments to streaming services. That’s where services like Experian Boost and StellarFi come in. With these, you can select bills that you pay every month, and the service will automatically report them to credit bureaus on your behalf. Not all bills are eligible, but in some cases, you will see your credit score jump immediately after signing up.
Alternatives to refinancing a car loan
Applying for a refinanced loan isn’t always the best option if you have bad credit, and building your credit can take time. Additionally, refinancing can come with prepayment penalties and other fees that could cut into your savings. Here are some alternatives if you don’t think refinancing makes sense for you.
1. Paying off the loan faster
If you can’t qualify for an auto loan refinance because of poor credit history, you can still save money on interest by paying off your car loan faster. By making extra monthly car payments or paying more than the minimum each month, more of your money will go toward the principal. This will chip away at the actual loan amount instead of just the interest. You can also allocate any bonuses, tax refunds, or other windfalls toward your car loan to accelerate its repayment.
2. Negotiating with your current lender
Before you decide to refinance or explore alternatives, try negotiating with your existing lender. Explain your financial situation and ask if they can offer you a lower interest rate or more flexible repayment terms. Lenders often prefer to keep current customers, so they may be willing to work with you to find a mutually beneficial solution.
3. Using a home equity loan or a HELOC
If you own a home and have built up equity in it, you may be able to use a home equity loan or a home equity line of credit (HELOC) to pay off your car loan. These options typically offer better interest rates than auto loans, but they use your home as collateral. That means you risk losing your house if you default on your loan payments.
4. Taking out a personal loan
Another alternative to consider is taking out a personal loan to pay off your original loan. A personal loan is a lump-sum loan that can be used for pretty much any expense, including debt consolidation, emergency expenses, and medical bills. Personal loans sometimes offer lower interest rates and better terms than auto loans. Just make sure you review the loan terms and fees carefully to ensure you're not increasing your overall costs.
5. Selling the car and buying a more affordable one
If your current auto loan is a burden — and refinancing isn't a viable option — you might want to consider selling the car and using the funds to buy a more affordable one, such as a smaller vehicle or a used car. This can help you lower your monthly payments and potentially avoid going upside-down on your loan.
6. Leasing a vehicle instead
If you're open to giving up vehicle ownership, you could consider leasing a new car through a dealership. While leasing often comes with lower monthly payments than purchasing, keep in mind that you won't own the car at the end of the lease term. You may also have to deal with mileage and wear-and-tear restrictions.
Compare auto loans with Navient Marketplace
Whether you’re looking for lower interest rates or longer terms, Navient Marketplace can help you find an auto loan refinancing provider that’s right for you. In less than a minute, you can fill in a few details about your car and your financial goals, and we’ll automatically match you with refinance lenders who fit your needs. Then, you can use our platform to browse the available options, compare offers, and choose the perfect provider for you. Get started here.