Getting a refinance auto loan with a bad credit score is very similar to getting one with any other credit score. But with more limited options for lenders and even fewer options for lenders with reasonable rates on bad credit car loans, you may need to do a little more legwork.
1. Check Your Credit Score
The first step to getting an auto loan refinance with a bad credit score is confirming whether you actually have a bad credit score. If it’s been a while since you’ve checked yours, it may have changed in either direction. Knowing your credit score can help you get a realistic idea of what rates you’re likely to receive and what your options are.
You’re entitled to a free credit report once a year through one of the three major credit reporting bureaus — Equifax, TransUnion or Experian. However, these days, many banks, credit unions, and credit card companies offer free credit score updates to their customers.
If you want regular access to a more detailed credit history, you can also pay to subscribe to a credit reporting service. This can help you identify items of concern on your credit report and work to fix them.
2. Find a Refinance Lender That Works With Bad Credit Borrowers
After getting a good idea of your credit situation, the next step to securing new financing is finding companies that will refinance your auto loan with bad credit. Fortunately, you have a few places to look.
Where To Find Refinance Auto Loans With Bad Credit
Refinance auto loans are a popular financial product. That means that you can find them with a number of different types of lenders, even if you have bad credit.
Here are the main types of lenders:
- Traditional banks: Brick-and-mortar banks are still a popular source for auto refinance loans. Credit requirements vary between institutions, but some banks are willing to work with borrowers with bad credit.
- Credit unions: Credit unions are similar to banks but are member-owned instead of for-profit corporations. As a result, credit unions may offer better rates and offer refinance options to people with lower credit scores.
- Online lenders: Online-only lending institutions have fewer operating costs than traditional banks and as a result may be able to offer lower rates. The amount of these types of lenders — which are usually backed by larger banks — means that some specialize in different types of borrowers, including those with low credit scores.
- Auto loan brokers: Rather than going to a lender directly, you can work with a broker that will shop around for refinance auto loans for you. These companies typically operate online.
- Lending marketplaces: With the marketplace model, borrowers can enter their information and receive offers from providers directly. This allows people to easily compare several refinancing offers.
3. Shop Around for Your Best Options
Our team recommends that borrowers get multiple financing offers and compare them. When it comes to finding the best companies to refinance an auto loan for bad credit borrowers, the differences can be significant.
People with poor credit scores can sometimes feel desperate to find financing options. Some lenders take advantage of that fact, offering sky-high interest rates to those borrowers. But not all lenders act this way. Some do offer rates that, while higher than those for good credit borrowers, are still within reason. Comparing a few quotes can help you find the best rate for you and your credit situation.
Will Applying for Multiple Bad Credit Refinance Auto Loans Hurt My Credit Score?
It’s true that applying for any kind of loan — including a refinance auto loan — requires a hard credit inquiry. This will likely cause your credit score to drop some. That part is, unfortunately, unavoidable.
However, credit bureaus now weigh multiple hard credit checks for the same type of loan within a short period of time the same as just one. That means that there is no additional impact to your credit score to get multiple loan offers from different lenders compared to getting just one.