by Aidan Kang, CFA
Senior Writer
UPDATED: July 27, 2021

If you’re struggling to pay back your car loan, you need to lower your monthly payment, or you’re looking for a lower interest rate, refinancing may be an option. For those with good credit, refinancing a vehicle loan may help you get better terms, which would most likely save you money. Does that mean you can’t apply if you have bad credit? No, you can still apply. You just have to find a lender that offers it to people who have poor credit scores. 

How Does Car Loan Refinancing Work?

Refinancing an auto loan involves transferring your current loan to a different lender with better terms, such as a lower interest rate. You can also refinance with your current lender if they can give you better terms. 

The application process for refinancing via an auto refinance loan is similar to the process involved when applying for a regular one. But instead of working with an auto dealer, you’ll be dealing with the lender directly. Once your application is approved, your new lender will pay off your debt from the previous one. Then, the vehicle title will be transferred to your new lender until you pay it back.

How to Refinance Your Car Loan When You Have Bad Credit?

Keep in mind that there’s no guarantee that you’ll get approved when you apply for a vehicle loan refinancing, especially if you have a sub-par credit history. If you have bad credit, you may find it difficult to get a lower rate. 

Generally, the lower the credit scores, the higher the rate will be. If you’re having problems meeting your payment obligations, refinancing may offer you a lower amount to pay per month by extending your term. But keep in mind that longer repayment terms mean paying more interest overall for the life of the loan.

Each lender has its process to follow when approving refinancing applications. In general, here are the steps involved.

1. Confirm that Your Credit Score is Actually as Bad as You Think it is

Before you start looking for a lender, you should check your credit score first. Many factors could negatively affect it, such as missing payment deadlines and maxing out your credit card. Review your credit report and make sure that there are no inaccuracies that may lower your credit score. If there are errors, make sure to dispute them right away.

Checking your credit report also gives you an idea of where you stand since lenders require their applicants to meet the minimum credit score requirements. It’ll give you a chance to improve your credit score before you apply to refinance a car loan. 

You can get a free copy of your report once a year from the major credit bureaus like TransUnion, Experian, and Equifax or go to

FICO Scores and VantageScores

FICO ScoresVantageScore
Very Good740-799Very Good661-780
Very Poor300-579Very Poor300-499

2. Try to Refinance with Your Current Lender

Before reaching out to a different lender, you should talk to your current one. Tell your lender that you’re struggling with your dues per month and ask if they offer to refinance. This will save you the hassle of having to look for a lender and going through the whole application process again.

3. Be Consistent and On Time with Your Payments

Avoid late payments at all costs. This will greatly help in improving your credit rating. Not only that, lending companies check your credit history when you apply for traditional credit or a vehicle loan refinance. If they see that you’re paying your dues on time, they may be more likely to consider your application. It may also qualify you for a better interest rate.

4. Look Around for Better Rates

Even if your current lender agrees to refinance your loan, it’s still best to shop around. This way, you can compare rates and offers to make sure that you get the best auto refinance that meets your budget. Make sure to compare the annual term, rate, and other fees like origination fees. 

What Requirements Must I Meet to Refinance my Loan? 

There are a few things you need to prepare before you apply for a vehicle loan refinance. These include:

  • Know your credit standing. There’s no universal credit rating requirement when refinancing your loan. Lending companies have different requirements. Some prefer applicants with a good credit rating while others work with people who have poor credit. Applicants with a score of at least 660 get better than average terms and rates, if not the best. Even if you have a car loan with bad credit, you could still find lending institutions that offer auto loan refinancing such as RefiJet and Capital one. You just need to know where to look.
  • Gather all the details regarding your existing debt. You can present the recent statement from your current lender. It’ll contain important information, which will be of interest to the lending companies you plan to talk to about refinancing your loan.
  • Be sure to have all the information about your vehicle with you such as the model, make, insurance coverage, registration, and VIN. Lending firms like Refijet will also ask for a valid driver’s license.  
  • Lenders want to know if you can pay back the money you want to borrow. So be sure to prepare your proof of income such as your paystubs.

Which are the Best Companies for Refinancing Auto Loans with Bad Credit?

iLendingDIRECT is one of the lenders that offer the lowest interest on auto loans including refinancing a loan with bad credit. You’re also able to refinance ATVs, RVs, boats, and other specialty vehicles.

  • APR = Starts at 1.99%
  • Duration = 24-84 months
  • Min. Amount = Starts at $7,500
  • Min. Credit Rating= 560

RefiJet offers auto loan refinancing for consumers with a score that is as low as 500. It defers payments for the first 2 months once it’s approved for refinancing.

  • APR = Starts at 2.49%
  • Duration = 24-84 months
  • Min. Amount = $5,000 to $150,000
  • Min. Credit Rating= 500

Auto Approve offers a break in payments for the first 45 days after you sign an agreement. It offers lease buyouts and is able to refinance specialty vehicles.

  • APR = Starts at 2.25%
  • Duration = 12-84 months
  • Min. Amount = At least $8,000
  • Min. Credit Rating= 500

Autopay offers the lowest minimum loan amount and one of the lenders that offer the lowest average APR.

  • APR = Starts at 1.99%
  • Duration = 24-84 months
  • Min. Amount = $2,500 to $100,000
  • Min. Credit Rating= 660

Capital One offers refinancing and other types of financial products plus credit cards. However, it does not offer refinancing options to its existing credit.  You will notice that the interest rate is higher when they do not look at your credit rating.

  • APR = Starts at 4.07%
  • Duration = 24-72 months
  • Min. Amount = At least $7,500 – up to $100,000
  • Min. Credit Rating= None

Consumers Credit Union offers refinancing options for existing vehicle loans without any restriction on vehicle mileage and age. 

  • APR = Starts at 2.69%
  • Duration = 6 to 84 months
  • Min. Amount = $5,000 to $75,000
  • Min. Credit Rating= 620

RateGenius doesn’t provide the credit directly. It works as a broker by matching borrowers to lenders that offer auto finance loans. 

  • APR = 1.99
  • Duration = 24 to 87 months
  • Min. Amount = $12,000 to $100,000

Min. Credit Rating= 550

MyAutoloan helps borrowers by presenting them with offers from different lenders. Applicants only need to fill out one application form to check offers and rates from different lenders in as fast as 4 minutes.

  • APR = Starts at 2.05%
  • Duration = 24 to 84 months
  • Min. Amount = At least $5,000 – up to $99,000
  • Min. Credit Rating= 575

Light Stream is SunTrust Bank’s online lending division that offers auto lease buyouts and auto loan refinancing. It is available in all 50 states and there are no mileage or vehicle restrictions.

  • APR = Starts at 2.99%
  • Duration = 24 to 84 months
  • Min. Amount = $5,000 – $100,000
  • Min. Credit Rating= 660

Lending Club is a popular online peer-to-peer lending platform that offers auto refinance loans. Applicants are presented with two terms and rates so they can decide which option fits their needs and budget.

  • APR = Starts at 3.99%
  • Duration = depends on borrower’s credit profile and car details
  • Min. Amount = $5,000 to $55,000
  • Min. Credit Rating= 510

Tresl, previously known as Innovative Funding Services, helps applicants by connecting them to their network of lenders that offer auto refinance loans, company vehicle purchases, and lease buyouts. It also provides vehicle registry services and assistance in transferring ownership.

  • APR = Starts at 2.49%
  • Duration = 36 to 84 months
  • Min. Amount = $5,000 to $100,000
  • Min. Credit Rating= 500

 Ally Clearlane offers refinancing existing auto loans and lease buyouts. It performs a soft credit check for prequalification and allows you to refinance car loans with a co-signer.

  • APR = Starts at 3.72%
  • Duration = 36 to 72 months
  • Min. Amount = $10,000 to $80,000
  • Min. Credit Scores = 580

OpenRoad Lending offers bad credit auto refinance to borrowers with a steady income, at least 36 months left to pay on current auto debt, and with a vehicle that’s 8 years old or newer.

  • APR = Starts at 2.99%
  • Duration = 32 to 72 months
  • Min. Amount = $7,500
  • Min. Credit Score = 500

Benefits of Auto Refinancing when You Have Bad Credit

  • Lower Your Monthly Dues– Refinancing your car debt could mean you’ll get a lower interest rate or it extends the life of the loan, which gives you more time to pay. Either way, you’ll get to pay lower amounts every month, which could help you save money and manage your budget.
  • Improve Your Credit Rating – By paying consistently and timely, you will notice improvements in your credit history.
  • Get A Chance To Save – Getting a lower rate or amount due each month can help you save money a little. Unexpected expenses such as medical costs, come when you least expect them. It’s best if you have some savings to help you get by.

What are the Other Factors to Consider when Refinancing Your Car Loan with Bad Credit?

Are there Prepayment Penalties?

Ask your lender if there’s a penalty if you pay off your existing loan early. If you pay more in terms of the penalty than the amount you’ll save when you refinance your bad credit auto loan, then refinancing your auto loan may not be a good idea.

How Long have You Been Paying Your Loan?

Refinancing your auto loan is a good idea during the early part of your loan when you still need to make several loan payments, which means more interest over time. By refinancing it, a lender may offer a lower rate than your current one, which means saving you money.

New Loan Terms

It makes more sense to refinance a car if the new loan term includes getting a lower rate. That’s why it’s best to improve your credit rating first before you apply so you’ll have higher chances of getting a lower interest. But for those with bad credit, getting a better rate may not be possible. Instead, they go for lower monthly payments, especially if they’re struggling with their finances. You need to be careful with this because extending your term by paying less every month could mean you’re paying more in the long run.

Why Do You Need to be Careful of Extending Your Loan Term?

Aside from paying more interest, extending your term puts you at risk of becoming “upside down.” It means your debt is higher than your vehicle’s value. Why is it risky?

You will have a hard time trading or selling your vehicle if the vehicle’s market value is less than your debt. For example, if you still owe $20,000 on your vehicle and you want to trade it in or sell it, you’ll probably get an offer that’s less than the loan amount.  

If you get in a car accident and you’re upside down on your vehicle loan, the compensation you’ll get from your insurance company won’t be enough to cover your current balance, which is higher than the car is worth.

Can You Refinance a Car Loan with a Cosigner?

You might hear others suggest that you refinance car loan with cosigner, and yes, you can do so. You can add a cosigner once when you refinance your existing car loan. Just know that your cosigner would also have to meet the lender’s requirements individually like you do.

Adding a cosigner might be able to help you get better interest rates. They may not have legal rights over your car, but they’ll be affected if you miss any payments or you default on your loan. So, it’s important that both of you understand the risks.


1. Can You Refinance an Upside-Down Car Loan?

Yes, you can refinance an upside-down car loan if the interest is lower than what you had when you took out your original loan. With auto loan refinance, you’ll have the chance to pay off your loan faster. Traditional bank lenders may hesitate to refinance an upside-down vehicle loan but some community banks or credit unions that refinance auto loans with bad credit. 

2. Will Refinancing Hurt my Credit?

If you refinance a car loan, it may negatively affect your credit score. When you apply for car loan refinancing, lenders will check your report, which will trigger a hard inquiry. It will cause it to drop five points or less. If you get approved, your score will decrease. All you need is to pay your loan timely and consistently to improve your score.

3. Can I Refinance my Car with the same Lender?

The auto refinancing rules and processes vary between financial institutions. Some lenders offer to refinance a current loan while others do not. Be sure to ask your lender about it, first.

4. When is the Best Time to Refinance Your Car Loan?

Your Vehicle Holds Its Resale Value – Check the resale value of your vehicle from the sites like National Association of Auto Dealers before you apply for a refinance loan. If your vehicle is worth more than your debt then refinancing your car loan is a good idea.

  • Low-Interest Rate – If the economy is doing good and the cost of borrowing has dropped significantly since you got your original loan then it may be able to help you lower your interest rate if you refinance a car debt.
  • Better Credit Scores – If you managed to improve your score over the past 12 months, then you may be able to get better terms including lower interest rates when you refinance your car debt.
  • You Need To Cut Costs – If you need to reduce your expenses, you can extend the repayment term through refinancing.


If you’re struggling to pay the required amount every month or if the interest rate is too high, then you should consider refinancing. Ask your lender if they’re offering this type of new credit before looking for the best company to refinance an auto loan with bad credit. Even if you have bad credit, you’ll still find lenders that will consider your application. Just remember that refinancing your loan makes sense if you’re looking for lower interest rates, you need to cut expenses, save money, and if your vehicle’s value is worth more than your current debt.