How to Refinance a Poor Credit Auto Loan
A borrower with poor credit that has obtained an auto loan may be in a situation that calls for him or her to refinance the loan. Refinancing any type of loan means that the borrower actually takes out a new loan, pays off the original loan with the new loan, and no longer has the original loan. When a borrower has poor credit and takes out a car loan, refinancing is a good idea if the interest rates go down or if the borrower's credit score improves.
The Process of Refinancing
A borrower should first consider the amount that it will cost him/her to refinance. With a car loan, this means the fees charged for a transfer of title, processing fees, and other upfront costs. Before applying for refinance, the borrower should make sure that the car is worth more than he or she owes in payments. Also, a poor credit borrower should only refinance after possessing the car and paying back the loan for at least one year. If the borrower is on time with payments for one year, then refinancing will result in a much better interest rate that is associated with an improved credit score.
The borrower does not need to refinance with the same lender that he or she first negotiated with. Subprime lenders, hard money lenders, and credit unions are the most likely suppliers of poor credit auto loans. Once a borrower has improved credit, he or she can negotiate with an established and recognized bank that will be able to provide enticing packages. Also, internet research can provide borrowers with free rate quotes.
Whatever the source that a borrower chooses as his or her new loan provider, the borrower should go into negotiations with his or her new credit score already calculated, a schedule of payments that he or she will be able to meet, a form of collateral (if the new loan is secured), and any proof to show the bank that his or her situation has changed.
Refinancing a bad credit auto loan requires certain basic eligibility requirements be met. A borrower interested in refinancing needs to be at least 18 years old and usually needs to be a United States citizen. The lending company will specify how old a car can be and how many miles can be on the car. Also, refinancing options are more malleable to people with an income above $2,000 per month.