Sometimes you can only qualify for a high interest rate on a car loan. Many borrowers think they have no choice – there are times when all you need is a vehicle. But, if you want a chance to lower your interest rate, refinancing might be the answer you are looking for.
The cost of a high interest rate
Your credit score is almost always the primary factor in determining the interest rates you qualify for on a car loan. So, if you took out a bad credit auto loan, you may only have been able to get a high rate. However, refinancing gives you the option of trying a lower interest rate on the same vehicle.
Refinancing involves paying off your vehicle loan and replacing it with a new one. Most borrowers refinance for a lower car payment, and lowering your interest rate can help while saving you money over the life of your loan.
To be eligible for refinancing, most lenders require that:
- Your vehicle has equity
- Your car is less than 10 years old and has less than 100,000 miles
- You haven’t missed any loan payments on your original loan
- Your credit rating is good or has improved since you started the loan
- It has been at least a year since the start of the initial loan
Many lenders also have stipulations on your loan amount and may require that your loan balance not be too high or too low. Most lenders also prefer to refinance vehicles in good condition, as it is not in their best interest to refinance cars with a high risk of mechanical failure.
Refinance the smart way
If you are unable to refinance and lower your interest rate on a bad credit auto loan, you may be offered to extend the term of your loan, but this is not advisable if you want to. save money overall. A longer loan term can lower your monthly payment, but it can cost you more in the long run.
Auto loans use a simple interest formula (in almost all cases), which means the longer the loan, the more interest charges accrue over time. If you simply extend the term of your loan without lowering your rate, then that means paying more for the same vehicle.
If you want to increase your chances of receiving a lower interest rate with a refinance lender, you may want to consider finding a co-signer. Co-signers “lend” you their good credit rating to help you qualify for loans and a chance to get a lower rate.
Bad credit connections
If you are looking for a refinance lender, visit our resource center to learn more about refinancing a car loan with poor credit.
Whether you are looking for another car loan or refinancing relationship, look no further than Auto Express Credit. We’ve created a coast-to-coast network of Special Finance dealerships that help bad credit borrowers finance their vehicles. If you feel that your car loan is not suitable for refinancing, then swapping your current car for another may be a good way to go. Fill out our free auto loan application form and we’ll search for a dealership in your area.