A car loan allows someone to purchase a vehicle without paying the full price upfront. However, some auto loans might be costly due to their high-interest rates. Refinancing a car loan could make the monthly premiums more affordable while speeding up the final pay-off date. Someone with bad credit might wonder about his/her options for refinancing. Thankfully, it may be possible for “bad credit borrowers” to refinance their auto loans.
Improve Your Credit Score
People deal with high interest and challenging loan terms because their credit score is too low, among other reasons. Those struggling with a low score could work on raising the number. Going from poor credit to fair credit may result in better offers on new loans. Improving a credit score could involve paying some unsecured debt down or allowing enough time for negative marks to fall off a credit history.
Order a Copy of Your Credit Report
Not everyone knows what their credit score is. Ordering a free copy of the current report tells the tale, and it may reveal some mistakes. If there’s any inaccurate information on the report, removing the false data could improve a score which, in turn, might lead to a better refinancing deal.
Get a Cosigner
Of course, improving a credit score could take time, and drivers could be dealing with the weight of a costly auto loan right now. According to Lantern by SoFi, “you can get a cosigner whose credit is in good standing when intending to refinance a car loan with bad credit.”
What a Cosigner Does
A cosigner becomes equally responsible for the loan in case of a default. So, if the cosigner has excellent credit and sufficient income, the lender might be willing to approve the loan. When asking someone to cosign a loan, the bad credit borrower may need to understand that a relationship could suffer if the cosigner gets stuck with the loan payments. Therefore, being a responsible borrower and meeting all obligations seems advisable.
Make Another Downpayment
One factor that contributes to interest rates is the risk the lender assumes. The more money lent to a “bad credit borrower” could mean more risk, resulting in higher interest rates. When attempting to refinance an auto loan, making an additional upfront down payment would lower the remaining balance and associated loan. The financing may then come with a lower interest rate and less cost.
Shop Around for the Best Rates
The financing company that approved the initial loan may or may not agree to a better interest rate. Sometimes, the borrower could get a better deal from another lender. Shopping around to find the best rates and terms might lead to a less costly borrowing deal that makes driving a car more affordable.
Options Exist for Those Dealing with Bad Credit
Don’t assume bad credit means always getting locked into high interest rates on auto loans. Options exist for reasonable rates, even for those with a troubled credit history.