Having bad credit is like a wet blanket on your finances. It can make you feel as if you're never going to get out of debt or be able to get a new loan. However, if your credit score has gone up recently and you now have fair credit instead of low credit, you may be able to refinance your car loan. When you refinance a car loan, your goal is to get a new loan that has lower interest rates than your current loan. But if you have fair credit, you still may have to search a bit for the right deal.
Fortunately for consumers, there is no single credit score formula that all lenders use, and what's only fair credit to one may be good credit to another. Consumers should know what their credit score is and then ask different lenders what kind of terms they qualify for. Consumers can then compare the offered interest rates to the rate they have on their current car loan.
There are a wide range of lenders willing to give loans to people with average or fair credit. Unfortunately, banks and other lenders typically reserve their best interest rates for borrowers with the highest credit scores, and fair scores. You may be able to find good rates if you join a credit union, as credit unions are non-profit organizations that sometimes offer more competitive interest rates or which allow members to have lower credit scores.
Credit and Reliability
Even if you only have fair credit, you may be able to get a better car loan if you can prove to the lender that you're a low-risk borrower through other means. Lenders look at more than just your credit score when evaluating a loan application. If you can prove that you've had a steady income for several years or can provide a lump-sum or down payment, a lender may be much more willing to offer you better loan rates.
Of course, the whole point of refinancing is to get a better deal than the loan you currently have. To do this, you'll need to find a lender that's offering lower interest rates. As long as your new lender is offering you rates that are lower than your current loan, refinancing will pay off in the long run. However, you do need to be careful. A lender may require refinancing fees, application fees, or other fees that you'll have to pay up front. Also, don't be suckered into a refinancing loan that offers lower monthly payments but at an extended loan repayment term. While you'll be paying less per month, you'll end up paying more over the life of the loan.
- Polka Dot Images/Polka Dot/Getty Images
- Freely Assumable Mortgage Vs. Qualified
- Does a Trade in Affect Your Loan Approval?
- How Does Prequalifying for an Auto Loan Work?
- Can I Still Get a Mortgage if I Co-Sign for Someone?
- How Is the Length of a Loan Determined on a Car Loan?
- How to Refinance a Car if I Owe More on It Than It Is Valued
- "If My Credit Is Destroyed, How Do I Buy a Car?"
- How to Switch Lenders in the Process of a Mortgage