If you are looking to refinance your car loan, you might be worried since you have damaged credit. Although your options might be limited, it is possible to refinance auto loans with bad credit. Let’s find out how.

What To Do First

Before refinancing you should carefully check your credit score. You can get a copy of your credit report from:

Be careful not to get misled by imposter sites that might be involved in identity theft. The Federal Trade Commission (FTC) provides helpful information about obtaining credit reports.

When you get your credit report, check for errors such as:

  • Accounts listed that are not yours
  • Inaccurate account information (e.g. incorrect credit limits, personal data errors)
  • Outdated information (e.g. expired accounts)
  • Fraudulent accounts (e.g. someone else used your data to get credit)

Go Loan Shopping

The next step in the refinancing process is to look for a new lender. You can check with banks, financial companies, or credit unions. There are also online lenders and services that can help you find a potential lender.

One quick way to find out if you qualify for a loan is to use an auto refinance network, like CARCHEX. This service contacts nearly 100 different lenders, and some might be willing to offer you refinancing even with bad credit.

Prime Vs. Subprime

The biggest factor that goes into refinancing decisions is the interest rate. Your credit score has a big influence in what rate lenders are willing to give you. Borrowers with excellent credit are eligible for prime loans which offer the lowest interest. People with poor credit are offered subprime loans which carry higher credit, sometimes up to 15-20% higher than prime loans.

Things To Watch Out For

Making inquires to multiple lenders is acceptable, but all inquiries must be done within a 30 day period. Services like CARCHEX help here since they consult with many lenders in just a few days.

Also, do not apply for other types of credit, like home equity loans, while you are inquiring about car loan refinancing. Multiple types of inquires at the same time could hurt your credit report.

Finally, you might be offered refinancing with a lower monthly payment, but at a very high interest rate. Try to avoid this as you will end up paying much more overall. Remember to ask about the total loan amount, and then compare this figure to your current car loan before you decide to refinance. An auto loan calculator may be helpful in order to compare your current loan terms to any new auto financing you are considering.

What To Do If You Are Turned Down

If you are not approved for refinancing, the first thing you should do is try to improve your credit rating. Things you can do are:

  • Make timely payments on all your credit accounts
  • Pay down any loans as quickly as possible; make extra payments if possible
  • Get your late account payments up to date as soon as possible
  • Consider seeking credit counselling
  • Keep credit card balances low or don’t use credit cards at all
  • Don’t take out a new credit card to pay off an old card


Bad credit limits your refinancing options, but there are things you can do to maximize your chances. Even if you get turned down, you can work towards improving your credit score and re-apply for refinancing in the future.

About The Author


Joe Campanella is the EVP of Business Development for CARCHEX and oversees partner relationships. Joe possesses 12+ years of experience building sales/customer service teams and securing strategic partnerships. He is a sports enthusiast who enjoys mountain biking, surfing and snowboarding in his spare time.

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