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Can I Refinance a Car Loan With Bad Credit?

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Even with poor credit, it is possible to refinance your car loan for a lower interest rate or better terms. Doing so can help save you money in the long run, so it’s worth reaching out to a company that specializes in helping customers with bad credit.

Here’s what you need to know about refinancing a car loan with bad credit.

Best companies to refinance your car when you have bad credit

Refinancing a car loan when you have bad credit means taking the time to compare rates and terms from multiple lenders. You may also want to consider adding a cosigner to the loan to minimize your risk profile.

To help narrow your search, we used application data from LendingTree partners to create a list of lenders who, during the first quarter of 2022, offered subprime borrowers an average APR below 10%. (Subprime borrowers are categorized as having a score below 620). Most of these lenders accept credit scores in the 500s and offer online prequalification.

Starting APRTermsAmountsMin. credit score
2.94%12-120 monthsVariesNo set minimum
2.49%24-84 monthsVaries500
Caribou2.32%48-84 months$7,500+581
2.74%24-96 months$10,000-$100,000None
2.14%36-84 months$7,500+510
3.99%Not disclosedNot disclosedNot disclosed
Gravity Lending4.29%36-72 monthsNot disclosed510

Auto Approve

Auto Approve collects your personal information to determine which loans you may be eligible for and then submits your application to the lender you choose. Loan terms will depend on the individual lender.

  • Starting APR: 2.94%
  • Terms: 12–120 months
  • Minimum amount: Varies

When you apply with Auto Approve, you’ll get preapproval quotes within seconds without paying an application fee, but you may be hit with other fees from your lender once approved. Applicants can add a co-borrower to their refinance loan and can add several types of vehicle protection to their loans, including roadside assistance.

ProsCons

  Preapproval does not impact credit

  No application fee

  May include admin fees, doc fees and more

RefiJet

Like Auto Approve, RefiJet fields applications and matches you with lenders. The process may be convenient, but unlike some other refinance companies, RefiJet charges a fee of $395 for loan processing.

  • Starting APR: 2.49%
  • Terms: 24–84 months
  • Minimum amount: Varies

With RefiJet, you can get prequalification quotes from multiple lenders with no impact to your credit, and applicants can add a co-borrower to their new loan. Refijet advertises that there is no loan payment for the first two months, however borrowers should be aware that this refers to the estimated time lapse between paying off your old loan and having a payment due on your new loan. In other words, you cannot skip any loan payments.

ProsCons

  Prequalification with no impact to credit

  500 minimum credit score

  $395 fee for loan processing

  Final terms may differ from prequalification

Caribou

Caribou offers auto refinancing and car insurance, but loans are not available in all states. Your state of residence can also impact your interest rate. Lenders may charge a processing fee of $399, in addition to their other fees.

  • Starting APR: 2.32%
  • Terms: 48–84 months
  • Minimum amount: $7,500

Your state of residence will have a big impact when you apply through Caribou. Loans are not available in Maryland, Massachusetts, Mississippi, Nebraska, Nevada, Wisconsin or West Virginia, and co-borrowers are only allowed in certain states. To qualify for the lowest advertised rates you must have a minimum credit score over 740 and your vehicle must have less than 85,000 miles.

ProsCons

  Prequalification doesn't hurt credit

  Social security number (SSN) is not required for preapproval

  Not available in all states

  Possible $399 processing fee

Gravity Lending

This company can connect you to lenders and creditors for auto refinancing, personal loans and even credit card offers. The company charges no fees for its auto refinancing service and the process from application to funding can take as little as a few minutes.

  • Starting APR: 2.74%
  • Terms: 24–96 months
  • Minimum amount: $10,000–$100,000

Gravity Lending advertises a low 2.74% APR, but like Caribou, you’ll have to meet several qualifications to get the lowest rates, including a minimum credit score requirement of 750 and you must be refinancing a 2018 or newer vehicle. You can add a co-borrower to your new loan and the company states that no payment is due for up to 90 days. Refinancing is not available for cars older than 2012.

ProsCons

  Prequalify with no credit impact

  No application fee

  Only available for vehicles 2012 or newer

iLending

iLending connects you to refinancing options for many different types of vehicles, including cars, boats and RVs. There’s no application fee for refinancing and this company works with cars that have as many as 200,000 miles.

  • Starting APR: 2.14%
  • Terms: 36–84 months
  • Minimum amount: $7,500+

iLending charges no application fee and joint applicants are allowed. The company offers refinancing for vehicles as old as 2011, but terms aren’t available upfront and borrowers with poor credit won’t qualify for their low starting APR.

ProsCons

  No application fee

  Vehicles up to 200,000 miles

  Only available for vehicles 2011 or newer

LendingArts

This company offers auto loans and refinancing through partnering credit unions. While there isn’t a lot of information available on Lending Arts’ website, generally, credit unions tend to offer more favorable terms than larger banks. Not much information is available on their website, but the application doesn’t appear to require a credit pull.

  • Starting APR: 3.99%
  • Terms: Not disclosed
  • Minimum amount: Not disclosed

ProsCons

  Access to credit unions

  Credit score requirement not disclosed

  Terms not disclosed

  Minimal info available on website

RateWorks, LLC

Unlike other companies on our list, RateWorks is a direct lender. RateWorks loans are catered to borrowers with poor credit, but loans are only available in 20 states.

  • Starting APR: 4.29%
  • Terms: 36–72 months
  • Minimum amount: Not disclosed

RateWorks has no minimum credit score and applicants can quickly get a quote with no impact to their credit. APR for borrowers with credit scores of 619 or lower is currently 8.09%, but RateWorks doesn’t charge any closing fees. Unfortunately, borrowers in most states can’t apply.

ProsCons

  No minimum credit score

  No closing fees

  Only available in 20 states

  Minimum repayment term of 36 months

When to refinance your auto loan

Refinancing a loan can help borrowers meet a few different goals. Refinancing may result in a lower interest rate, which saves you money on loan repayment, or it could bring down your monthly payment and help you balance your budget.

Here are some of the scenarios where refinancing makes sense:

  If your credit has improved. Credit scores are one of the main factors that determine loan qualification. If your credit scores have improved since you took out your current loan — perhaps due to your recent history of on-time car payments — you may be able to qualify for a refinance loan with lower interest rates.

  If you can’t afford your current payments. Refinancing can make loan payments more affordable in a few ways. If you take out a new loan with a longer repayment term, the monthly payments will be lower. Just be aware that longer repayment can result in paying more interest over time. Alternatively, if your new loan has a lower interest rate it could also lower the monthly bill.

  When interest rates have dropped. Interest rates are partially determined by market forces. If market rates have dropped since you took out your current loan, a refinance could be a way to get you into a better rate.

  While your car’s value is high. The value of your car is another factor that impacts auto financing. You’re more likely to qualify for better rates, or a higher refinance loan amount, if the vehicle has high value in comparison to what you owe on your loan.

  If your dealer marked up your interest rates. Auto dealerships often mark up rates and fees for financing. If you took out your loan from a dealership, you can likely find a better deal if you refinance through a credit union, bank or even an online lender.

If none of the above scenarios apply to you, it’s probably not a good time to refinance. You may need to work on improving your credit score or addressing other factors on the list before seeking to refinance your auto loan.

How do I refinance a car loan with bad credit?

There are several steps involved with refinancing a car loan, and the process should start before you reach out to potential new lenders. Here’s an overview of the steps you can take to get the best deal:

Check your credit

Review your credit to see if it has improved. You should also be sure to dispute errors that hurt your scores, such as inaccurate records showing missed payments or accounts that don’t belong to you. You can pull your credit reports from all three credit bureaus for free, with no negative impact to your scores, from AnnualCreditReport.com.

Contact your current lender

You can streamline the refinancing process by working with a lender who already has your information on file. Plus, you may even get a better deal for having a preexisting account with your lender. Just make sure your lender offers refinancing for its own loans.

Shop for the best rate

Even if your current lender offers a good rate, you should still shop around. To get the best deal, see what’s available from other car refinance companies in terms of rates, fees and other loan terms that you’re looking for, like the length of repayment.

Select a lender and apply

Once you’ve chosen the best lender for your refinance, you’ll need to provide a handful of documents for your application. Each lender has unique requirements, but you should be prepared to verify your income and employment information, present your driver’s license, SSN, your current loan documents and provide your vehicle identification number (VIN) and registration number for your current vehicle.

Refinance a car loan with bad credit: FAQ

What credit score do I need to refinance my car?

Credit score requirements are unique for each lender, but some work with scores as low as 500. In order to get the best auto loan refinance deal, you’ll likely need better credit scores than you had when you took out your current loan.

Should I refinance my car loan with bad credit?

Even with bad credit, refinancing can be an option. Taking on a new loan could help you reduce your monthly payments or bring down your interest rates. Just be sure you know what your goals are, and don’t apply for a loan if it doesn’t meet your needs.

What happens to my credit score if I refinance?

Refinancing can impact your credit scores in a couple of ways. In the short term, you may lose a few points for each loan application. Your scores can also drop when you close an old loan account and when you take on new debt. But in the long term, making on-time payments and paying down your debt balances has a stronger, more positive effect that can improve your overall credit health.

What happens if I extend the term of my car loan?

There are pros and cons to extending your loan repayment. The main benefit is that it can reduce your monthly payment amount and help free up some cash in your budget. The downside is that interest accrues as long as you carry a balance, so extending the repayment is more costly in terms of overall interest fees.

Is there a limit to how often I can refinance my car?

No. There is no set limit to the number of times you can refinance your auto loan, however refinancing multiple times can have negative consequences. For one, opening and closing loans can decrease your credit score. Plus, the more you extend your repayment period the more interest and fees you’ll pay, and the greater your risk is of going upside down on your car loan.

 

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