Millions of American default on their monthly car payments every single year. If you think you may be headed in this direction, an ill-used option that can save a negative hit to your credit history is to simply refinance the loan to lower the payments to a more manageable level.
So, under what conditions can you refinance a car loan with bad credit? It happens when there’s a lot of money left to be paid on the outstanding principal, you expect hardship to be forthcoming, or you expect to need to drive that same car for several more years than previously anticipated.
The Method: Refinancing Your Car Loan
The first thing you should do is make sure that the lender you’re currently with offers a refinancing option before you go elsewhere. A lot of times, they have deals and promotions, and you could be eligible for a new loan if it’s been some time since your first one.
Since you presumably started out with a bad credit loan, you may actually be well-positioned for a refinance now. If you’ve been paying your monthly dues regularly for the past half-year to a year, then your current lender should be quite open to helping you refinance. Even if your initial inquiry is rebuffed, apprise them of your intention to shop around for better terms – you’d be surprised at how quickly an agent calls you back with a deal.
What If You Do Go Elsewhere for a Refinanced Auto Loan?
Well here’s the good news: to increase your chances of getting an acceptance, you must have all the necessary paperwork ready when you approach another lender with a request to refinance. In fact, not having these documents is the primary reason that people get rejections. Gather the following and place them in a portfolio/briefcase:
- Vehicle Information such as mileage, model, make and year – and of course, the Vehicle Identification Number
- Include pay stubs from work to show how much you earned this year or last; for self-employed individuals, the lender will accept a previous tax return
- Contact information for your job – in fact, include where you worked previously, as well
- Your SSN or EIN, your present and previous addresses
- Documents detailing your current loan balance and monthly payment schedule
- Information on your current lender – everything from the account number, to the loan terms
It also helps to peruse the terms and conditions mandated by your prospective lender. After all, you don’t want to waste your time getting together all the paperwork, only to find that your car is one year beyond the limit at which they refinance, or several thousands miles over their mileage limit.
As a final move before you start lender-hunting, take a look at your credit history one more time to make sure there aren’t any discrepancies that could cost you interest-rate points.
Going After the Right Lender
Now that you’ve got your chips in order, head to your local bank or even a credit union with which you’re familiar. Some of these places specialize in getting car loan deals done for people with bad credit specifically, and you can trust that they’ve pretty much seen it all. Chances are, they’ve got a package for you that’s hard to beat by any other lender.
Additionally, you should obtain this pre approval anyway. Let’s say you want to go with online bad credit car loan specialist; then, given that you have this offer, it increases your leverage and puts the pressure on them to beat the terms you were offered. Obviously, you should pick the better rate, which involves manageable monthly payments and a reasonably short loan term.