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Bad credit doesn’t lock you out of auto refinancing — but it can make the process trickier. If you credit score isn’t where you want it to be, you might feel stuck with a high interest rate or a monthly car payment that’s stretching your budget. The good news is you have options.
Many lenders work with borrowers who have low credit scores. In this guide, we'll break down how to refinance a car loan with bad credit, plus steps to boost your approval odds.
Yes, you can refinance a car loan with bad credit. But you need to first understand how auto loan refinancing works to improve your chances of approval.
Refinancing is when you replace your current car loan with one that has better terms like a lower interest rate or smaller monthly payments. Before a lender offers such a loan, they’ll determine your eligibility by considering your:
While refinancing with bad credit can help you get out of a hard-to-maintain loan, it typically comes at a cost. For example, the lender may lower your monthly payments but extend the loan term, increasing the total amount you’ll repay over time. Additionally, lenders may charge higher interest rates to offset the risk of lending to a bad credit borrower.
If you have bad credit and plan to refinance your car loan, consider the following tips to improve your loan options:
Before attempting to refinance your car loan with bad credit, work on improving your credit. Besides boosting your chances of getting approved, a better credit score can get you more favorable interest rates. You can improve your credit score by consistently paying your current loans and credit cards on time. Doing so for even a few months should boost your creditworthiness.
A high DTI tells lenders that most of your income goes to paying debts, such as credit card balances and personal loans. This makes you seem like a high-risk borrower who might struggle to keep up with new loan payments. Lowering your DTI can change this impression and improve your chances of loan approval. Before applying to refinance, try to pay off credit card balances and other debts and avoid taking on new ones.
Adding a cosigner with good credit can make you a less risky borrower in the eyes of lenders. If you miss payments, your cosigner is on the hook for the loan. Having such a safety net minimizes the lender’s risk, making them more willing to offer refinancing, even if you have bad credit.
Some lenders specialize in offering refinancing to high-risk borrowers. Working with such lenders increases your chances of getting refinancing approval. However, they typically charge higher interest rates to cover their risk. To get the best deal, compare offers from multiple bad credit lenders before accepting a loan.
Earning more than when you took out your original loan and proving steady employment reassures lenders that you can handle payments. This could increase your chances of getting refinanced with bad credit. Show lenders your boost in income with pay stubs or bank statements to strengthen your application.
Your LTV is how much you owe compared to your car’s value, and the lower it is, the better your refinancing chances. If your LTV is high, paying off a chunk of your loan can reduce the principal balance you owe. Reducing your loan balance decreases the lender’s risk and improves your chances of approval.
According to Experian, a bad credit score is anything between 300 and 579, while 580 to 669 is fair and 670 and above is good. Lenders consider bad credit to be a sign of risk, so they charge a higher interest rate to offset their risk. A high interest rate increases the total cost of a loan.
Based on 2024 data gathered by Experian, here are the average interest rates for different credit score ranges:
As the table shows, auto refinancing with bad credit generally leads to higher interest. The exact rate will vary between lenders, with some offering less or more.
If you have trouble refinancing due to bad credit, here are other ways to make your loan more manageable:
Refinancing a car loan with bad credit is possible, but only if you go about it the right way. For example, improving your credit or adding a cosigner may increase your chances of approval. You should also shop around for lenders that specialize in bad credit refinancing.
Check your credit score so you can target lenders that specialize in borrowers within your credit range. The right lender will have no hidden fees and offer monthly payments and loan terms you like.
RefiJet lets you compare multiple lenders to find the best loan offer for your situation. Start the auto loan refinancing process today.
Here are answers to some popular questions about refinancing a car loan with bad credit:
Having very bad credit, insufficient income and a history of missed payments can disqualify you from refinancing. You may also have trouble refinancing if you have an upside-down loan where you owe more than your car is worth.
Yes, you can refinance your car loan with a 500 credit score if you have income stability and a manageable debt-to-income ratio. You just need to find a lender that’s willing to work with borrowers with credit like yours.
Yes, you can refinance your car loan to lower your monthly payments and give your budget some breathing room. Keep in mind that extending your loan term to lower your monthly payments can increase your total loan costs over time.
Refinancing can cause a small, temporary dip in your credit score due to the required hard credit check that a lender will do if you proceed with the loan. Over time, it could help your score if you are making on-time payments.
Yes, several alternatives are available if you can’t refinance. For example, you could negotiate with your current lender to lower your monthly payments. Alternatively, sell or trade-in your car for a cheaper one to reduce your loan balance and monthly payments.
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