How to Refinance a Bad Credit Car Loan

Having bad credit may not be your fault, but when the time comes to look for a loan, that bad credit can hurt you tremendously. This method will help you refinance a high interest car loan into a lower interest car loan, even with less than perfect credit.

Instructions

1

Check the value of your car. If you owe more on the car than the car is actually worth you will not be able to refinance it. The reason for this is that in the event of a repossession, the bank would not be able to recover their money. (See resources section for KBB website)

2

Reread your original contract. The goal of refinancing is to get rid of those sky high interest payments. If, however, a "prepayment penalty" was written into your original loan you will not be able to refinance without refinancing the entire amount owed on the interest into the new loan amount.

3

Check your contract for scams. If you financed through a dealership, it is very possible you are paying extra every month for "perks" you did not know you had like roadside assistance or an extended warranty. Canceling these programs may free up enough money to make refinancing not necessary.

4

Start working on your credit. Making regular payments on your car improves your credit every month. Try to dispute off some negative payments, or have some old late notations removed. You don't have to have perfect credit, but this cannot be attempted with abysmal credit.

5

Wait 6 months from the original purchase. You cannot refinance an auto loan until 6 months or longer have passed from when you bought the vehicle. This gives you time to get to work on your credit.

6

Pull your credit score. When enough time has passed to refinance, pull your credit score to see what you have to work with. Always know your own buying power.

7

Start shopping around for a low interest auto loan. Do not apply yet, since you do not want anyone to pull your credit themselves. Give them your score and let them tell you the rates you qualify for.

8

Choose the bank or credit union with the lowest rates and refinance the vehicle for lower monthly payments.