Refinance your subprime auto loan
Refinancing is a great way to save money on your monthly car loan payment, but it can cost you more in the long run if you’re not careful. Refinancing when you have a subprime auto loan is not always as easy as refinancing a vehicle when you have good credit. Working with the right lender can help, however.
What is refinancing?
Refinancing involves replacing your existing car loan with one for the same vehicle, which may have a lower interest rate, a longer loan term, or both.
Qualifying for a lower interest rate is optimal for getting a lower monthly payment and saving money overall. If you only extend the term of your loan without getting a lower rate, you will end up paying more interest over the term of your loan.
Auto loans generally use a simple interest formula, which means your interest costs add up daily. The longer your loan term, the more you pay the lender – it is wise to choose the shortest loan term you can afford. If you only extend the term of your loan, you risk paying more than the value of the vehicle!
Refinancing can usually be done with your current lender or another. It is a good idea to seek out the best possible rate before going with the first offer you receive. When you shop for the same type of financing from multiple lenders within a two-week period, it’s called shopping for rates. When you do this, just one credit application impacts your credit score instead of several, which minimizes the negative impact that tough drawdowns can have on your credit score.
Options for bad credit borrowers
Taking out a subprime car loan is a great way to improve your credit, so if you’ve been on your loan so far and just need a little wiggle room in your budget, refinance could be for you. Your credit is an important factor in refinancing your auto loan because refinancing is generally reserved for people with good credit.
However, when a borrower has already taken out a subprime car loan, many refinance lenders are willing to work with him as long as they have improved their credit over the course of the loan. However, better credit does not qualify you for refinancing.
In order to be eligible for refinancing, you, your vehicle, and your loan must all meet the requirements of a lender. These vary, but to refinance your car, you usually need to meet these conditions:
- Have a better credit rating than at the start of the loan
- Have your car loan for at least a year
- Have an acceptable loan amount
- Do not have more than 100,000 miles on your vehicle
- The car cannot be more than 10 years old
- You must be up to date on your payments
- There can be no negative equity in the vehicle
Lenders who refinance generally prefer cars that are in good condition, are not too old, and have lower mileage. Some lenders may not want to refinance a vehicle that is at risk of breaking down or depreciating quickly.
They usually look for a loan that is not too recent, or too close to being paid off as well. And, refinancers may also require that you have not missed a payment on your original car loan. A borrower whose current loan amount gives the lender confidence that you will handle the new loan well.
Alternatives to refinancing your subprime auto loan
If you are unable to refinance your vehicle, you usually always have the option of trading it in for something more affordable. Even if you are still paying a loan, all you have to do is pay off the loan to release the lien on the car.
Even if years go by before your loan term ends, you may have a good chance of trading in your vehicle, especially now. Due to fluctuations in the auto market, used cars are in high demand right now, which means dealerships may be willing to pay a higher price to get your used vehicle on their lot – even if you are a bad credit borrower looking to swap. in.
If you still owe on a car loan, this gives you a better chance of selling your car for the amount you owe the lender. It can even give you enough money to invest in your next more affordable vehicle!
Ready to start?
If you think refinancing your subprime auto loan is the way to go, you can check out our resources here. But, if you think finding an affordable used car with a lower monthly payment is the right choice for you, we want to help get you started on your path today!
TO Auto Express Credit, we have a coast-to-coast network of special finance dealers ready to work with borrowers experiencing credit problems. To connect with a dealership in your area who is registered with subprime lenders, simply complete our auto loan application form. It’s fast, free and without any obligation.