Refinance or Buy a Vehicle with Bad Credit?

Choosing to buy another car or refinance the one you own can be a difficult decision. Your personal situation and what you need next can influence your choice, so here are some tips.

Refinance or Upgrade?

Refinancing works by either extending the term of your loan or lowering your interest rate (sometimes both). You replace your existing loan with another, which gives you the opportunity to change the terms and potentially save money. Your refinance lender pays off your existing auto loan and you start another with the new lender.

The biggest question to ask yourself if refinancing makes sense for you is it: do you like your current vehicle?

In most cases, borrowers who refinance their cars are looking for a lower monthly payment. If you are applying for refinancing, you usually have two options to lower your payment: get a lower interest rate or get a longer term loan. If you don’t qualify for a lower interest rate, your only option to lower your monthly payment would be to extend the term of your loan, which means paying longer for your vehicle. Can you imagine keeping it for many years?

Auto loans are generally straightforward interest, which means your interest costs accrue daily. The more loan you have on your car, the more you pay. Consider the implications of extending an auto loan, as it could cost you and possibly pay more than it’s actually worth.

Refinancing and bad credit

Another thing to consider is your credit score. Borrowers with lower credit scores may struggle to get a low interest rate, but the good news is that refinancing doesn’t require a clean credit score. Refinancing can be done with poor credit, but there are still conditions to be met.

For starters, most refinance lenders require that your credit rating be better than it was when you got the original loan for your car. If you had very bad credit when you got the car loan, but maintained the loan well and made all of your payments on time, your credit score could be better.

Another common refinancing requirement is that you haven’t missed any payments on your original loan. Your new lender wants to make sure that refinancing the vehicle is a good deal for them – they want the reassurance that you can pay off your loan. Also, not all lenders refinance vehicles, they should be aware that the car can last for the life of the loan.

Other common refinancing requirements typically include:

  • You have been financing the vehicle for at least a year
  • The loan amount is neither too small nor too high (varies)
  • Your car is no more than ten years old or has more than 100,000 miles
  • You have equity (the value of the vehicle is greater than the loan amount)

Of course, all refinance lenders vary and they may have more or less requirements.

First try to evaluate your purchases

Before you decide to refinance your vehicle or buy a new one, it is worth comparing the interest rates offered by local lenders. The higher your credit score, the better the rates you are likely to be offered.

Every time you apply for finance from a lender who checks your credit, they do a thorough investigation (or pull) that lowers your credit score a bit for up to 12 months. But if you apply to multiple lenders of the same type within two weeks, just one blow is bad for your credit score. All are reported on your credit reports, but only one carries the impact if rate shopping is done correctly.

When you have bad credit, it’s important to consider your credit score and avoid further damage. If your credit score is too low, you may have issues qualifying for refinancing or another car loan – and applying for new credit over a few months may just further reduce your chances of qualifying.

You can also do the same for another auto loan if refinancing is not right for you.

Finance a vehicle with bad credit

If you think refinancing may not work for you or your car, financing another vehicle and trading in your current vehicle may be the way to go. And if you think your lower credit score might be a barrier to another auto loan, you have options.

Subprime financing is intended for borrowers whose credit is far from perfect. These car loans for bad credit are offered at special financing dealers. To qualify, a stellar credit score is not required, as they specialize in helping borrowers with bad credit.

It means proving income, residency and having a down payment. Stability is the name of the game – the longer you’ve worked in the same job and lived in the same region, the better your chances of qualifying. Your income and employment history are also reviewed.

Although subprime financing requires a down payment (in almost all cases), if you have an exchange, it can help you meet this requirement. Usually, subprime lenders require at least $ 1,000 or 10% of the vehicle’s selling price in cash and / or trade-in equity.

Need automatic connections? We got you covered

When you are looking for a refinance lender or a lender who can help you with bad credit, we have connections for either route.

You can consult our resource center for connections and more information on refinancing your current vehicle. Or, if you need another car loan, let us match you with a dealership that works with bad credit.

AT Express auto loan, we have created a national network of dealers who have signed up with subprime lenders. After completing our auto loan application form, we will search for a dealer in your area free of charge and without obligation. Get started on your way to your next car now!


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