One of the most difficult things to do when you have bad credit is to obtain financing for a large purchase like a car. Almost all car dealership financing departments require a credit check and a minimum credit score in order to qualify for financing whether the dealer provides it or some other financing company makes loans available to buyers.
But what happens if you want to refinance your vehicle? Are the requirements different? Will it be more difficult to qualify? These are questions that are very important to car buyers because they can not only make it difficult to purchase a car but can also make it more expensive.
The good news is it is possible to refinance an auto loan with bad credit. It’s a step-by-step process. More often than not you will find that your refinancing goes more smoothly and more successfully if you follow the proper steps in the proper order.
What is Refinancing?
Many people fundamentally misunderstand the process of refinancing any kind of loan much less an auto loan. Refinancing is the process of obtaining a second loan in order to pay off the first. The reason people refinance is because in some cases the second loan is less expensive or has a lower interest rate than the first. When you are refinancing you are looking for an opportunity to reduce your payment, reduce the term or reduce the overall cost of borrowing.
The first step in successfully obtaining auto refinancing is to reduce the amount you borrow in the second loan. There are several ways to do this. The easiest is to add a down payment to the second loan. All this means is that you are adding an upfront cash payment to the deal which reduces the principal in the second loan. The lower the loan amount the more likely it is that the refinancing deal will be approved.
Improve Credit Score
The second and potentially more difficult step to obtaining financing is to make an attempt to improve your credit score. This can be difficult or simple depending on the nature of the entries on your credit report. You can contact the three credit reporting agencies: Experian, Transunion and Equifax, to obtain copies of your credit report. You should make an attempt to remove any inaccurate for outdated information from those reports.
This may have the secondary effect of increasing your credit score which will reduce the cost of your second loan. The other necessary steps to fixing your credit may require additional time. Make certain that no accounts on your credit report are “delinquent” or behind in their payments. Also make certain any account that is eligible to be paid off is actually paid off. For example, if you have a $100 balance on a store credit card it will reflect positively on your credit record if that amount is paid off rather than carried as a balance.
After your credit is repaired and you have a down payment, the third step is to make an attempt to prequalify for a loan. Pre-qualifying means your lender will tell you how much you are qualified to borrow based on your current circumstances. Once you understand how much you can afford to borrow it will give you an idea of what kind of car you can afford. There is nothing wrong with pre-qualifying for a loan as part of the refinancing process. In fact you may find at the refinancing is an advantage because you’re likely to get a better interest rate and better turn on the second loan.
The fourth step to making it easier to refinance your vehicle is to check with at least two and possibly more lenders before you make a decision. Some lenders will turn you down no matter how good your circumstances are. Other lenders we’ll take your deal and charge you a higher interest rate. What you are looking for is the lender that takes the deal, gives you a fair interest rate and fair terms. To be honest the chances of finding that lender on the first try or rather low.
Get the Right Help
This is likely the most difficult. You can attempt to obtain help with your credit application. This is not recommended because it potentially puts more than one person on the hook for the balance of your auto loan. Nevertheless, asking a friend or family member to co-sign for your loan is a good way to boost your eligibility. Asking a friend or family member to help you with the step one advice of including a cash upfront payment before you borrow is also powerful option. One additional thing to remember is there are experts in the field of financial advice who may have additional options for you if you take the time to consult with them.
Find a certified financial planner, a certified public accountant or even a veteran officer at your bank. These professionals may have creative and sometimes far less expensive options for you to navigate the process of refinancing your auto loan. If you have bad credit the best solution to financing or refinancing your auto loan repair your credit. There are a number of ways this can be accomplished. It is often a good idea to check with a credit repair specialist or one of the above-mentioned professionals to see how much your credit can be improved before you make an attempt to refinance your vehicle. You will likely find that this is the least expensive and most effective option.