You can most likely find a lender to refinance your auto loan if you have fair or poor credit. The question is whether you can find better loan terms that make refinancing your car worth it.
Lenders decide whether a score is good enough, but the fair credit score cutoff on the FICO scale is 669 or less. Some lenders accept lower credit scores to help more borrowers qualify. But these loans usually come with very high interest rates.
Even with a higher interest rate, there are some reasons you might want to refinance your car loan, including:
A car dealership financed your current loan at a higher interest rate.
Your credit has improved.
Interest rates in general have dropped.
You’re having trouble making monthly payments.
If you fit one of those scenarios, here’s how to determine if refinancing is the right move for you despite a low credit score.
1. Check your credit score and report
Before you apply for an auto refinance loan, review your credit. You can get your credit report and score for free through NerdWallet. You can also receive a free weekly credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — at annualcreditreport.com.
If your credit score is below the mid-600s, you can expect higher loan interest rates and closer review by lenders. But if your credit score has risen since you got your original loan, you might qualify for a lower interest rate.
Once you have your credit report, look for errors that could negatively affect your score, such as payments marked late that were actually on time. Dispute any errors and have them corrected.
Knowing where you stand from a credit perspective can help you determine whether refinancing to a better loan is realistic.
2. Look for lenders that meet your criteria
You can start with your current lender to see if they’ll refinance your loan, but that’s not a common option. Even if you can reduce your rate with your lender, you should still shop around with several lenders to see if you can find a better offer.
To decide which lenders might be a good fit, here are a few questions to ask.
What is the refinance lender’s minimum credit score requirement? Look for lenders that will refinance loans for borrowers with your credit score. NerdWallet reviews many auto loan refinance lenders and provides their minimum credit score requirements when available.
Will the lender allow you to pre-qualify with a soft credit check? If so, you can get estimates of the interest rates you might qualify for without affecting your credit score.
Does the lender restrict when you can refinance? Some lenders require you to wait six months or more after taking out your previous loan before you can refinance, especially if you have bad credit. That waiting period lets you show the lender that you will make payments on time. Also, some lenders won’t refinance an auto loan without a certain balance or number of months remaining.
What fees does the lender charge? Most lenders don’t charge fees to apply for a loan, but some can charge $400 or more in origination or processing fees when you take out a new loan. If a lender's fees are high, look for lenders with no or low fees that won’t cut into your savings.
3. Pre-qualify with lenders to see estimated interest rates
Once you’ve narrowed down the lenders you want to consider, pre-qualify with them to see an estimate of the interest rates you might qualify for. Pre-qualifying is free and uses a soft credit check, which doesn’t affect your credit score. This means you can get a better idea of potential interest rates without lowering your score.
Be prepared for lenders to call you after you pre-qualify
4. Apply for approval
Based on your pre-qualified offers, choose several lenders and apply for refinance loans. Be prepared to provide:
Current loan documents.
Exact mileage.
Car features.
Proof of income and employment.
Approval will require a hard credit inquiry. You can’t avoid the small drop in your credit score that a hard credit check triggers, but you can submit all loan applications within a 14-day period to minimize the impact on your credit score. Credit bureaus typically treat applications for the same type of loan as one application, causing less of a hit to your score.
5. Compare refinance loan offers
If you receive more than one refinance loan offer, compare them to find the best auto refinance loan and rate. You can use our auto refinance calculator to compare each offer with your current loan.
Comparisons in action
Here’s an example of how you can compare offers. The numbers are rounded to the nearest dollar and include no fees.
Say you originally took out a loan for $35,000 with a 9.75% APR for 60 months. After a year of payments of about $739, you’d still owe around $29,290 on your loan.
For the first refinance loan offer, let’s say you could refinance the remaining $29,290 for 48 months at an 8% APR. That would bring your monthly payment down to $715. That might not seem like much, but it saves you $1,167 over the life of the new loan.
But what if the second loan had a lower interest rate over a longer term? Let’s say the second offer was to refinance the same amount for 60 months at a 7.95% APR. That lowers your monthly payment to $593 but costs you $103 more than your current loan over the life of the new loan.
The longer loan term in the second offer also extends your loan for another year. That means your car will be worth less by the time you pay off that loan than if you chose the other refinance offer, likely meaning a lower trade-in value as well.
When you can’t qualify to refinance with bad credit
If you can’t qualify to refinance your auto loan to a lower rate, try one of these options.
Ask a friend or family member with good credit to co-sign for the refinance loan, which could help you qualify. Just make sure the lender allows co-signers, and your co-signer genuinely has good credit.
Trade your current car for something more affordable and take out a new loan with a lower balance.
Ask your current lender about assistance programs if you’re struggling to make your car payment.
Stay with your current loan and make on-time payments for six to 12 months, which may improve your credit and chances for loan approval.
