How to Refinance an Auto Loan with Bad Credit

4 min read
man focused on work at home office

Whether you’re stuck in a high-interest auto loan and want to save money, or you’re looking to slash your monthly car payment, auto refinance may be the answer for you. However, if your credit score is less than 700, you may be wondering if you can refinance your auto loan with bad credit.

How to Refinance an Auto Loan with Bad Credit

While there’s no guarantee you’ll be approved for a new loan, today’s competitive interest rate environment may work in your favor. Here are a few things to consider when refinancing a car loan with a low credit score.

1. Get clear on what your credit situation actually is

Order copies of your credit reports (you can get one for free each year from the three credit reporting companies) and review them to make sure everything is accurate. If not, you’ll want to resolve inaccuracies before applying to refinance.

2. Check your credit score

There are many free credit monitoring tools (your credit card company may provide one). According to Credit.org, the credit score ranges break down as follows: 300-550 (poor), 550-620 (subprime), 620-680 (acceptable), 680-740 (good), 740-850 (excellent).

3. Check with your current lender to see if you can refinance with them

If your credit score has improved or you’ve made a few on-time payments in a row, your lender could be willing to do what it takes to keep your business, including releasing your cosigner and/or refinancing your auto loan.

4. Shop around

You should be able to apply for auto refinance loans through several lenders without doing more damage to your score—most credit scoring models count multiple loan inquiries as one if they’re close to one another, so feel free to apply at multiple banks, credit unions, or online lenders.

5. Look for credit score indicators

Many lenders will share a credit score range or minimum credit score in their FAQs or elsewhere on their site. If you’re in the subprime or poor credit category, loan options that are clearly marked “bad credit” or “subprime” will be easier to obtain—just watch out for higher-than-average interest rates and fees.

6. Pay close attention to loan terms

Remember to compare all the terms and fees, such as prepayment penalties, late fees and closing fees. If you’re refinancing to save money, you may want to choose a loan with a shorter term vs. a longer one, which is typically higher interest but can reduce your monthly payments.

When Should you Refinance a Car Loan?

Here are a few reasons to consider refinancing your auto loan:

  • Your credit score has improved since you took out the loan. Even if your credit score is less than stellar, having a slightly better score than when you first took out your auto loan helps.

  • You want to add or remove a cosigner. Adding a personal loan cosigner with better credit than yours can help lower your rate. Or you may be ready to remove the cosigner you needed when you first got the loan.

  • You want a lower monthly payment. Whether your budget is tight or something unexpected happened (such as job loss or a medical emergency), refinancing an auto loan can help get you more affordable payments.

  • You realized you didn’t get the best rate. If you got your loan at the dealer, chances are you are paying more interest than some of the auto refinance options out there.

  • There are lower interest rates available. When shopping around for the best place to refinance an auto loan with bad credit, you may have come across much better rates than what you’re currently paying. Even a small difference can make a big dent in what you’ll need to pay throughout the lifetime of your loan.

There are times when refinancing doesn’t make sense. For example, if your car loan is upside down—meaning your vehicle is worth less than what you currently owe—most lenders won’t approve your refinance loan.

How Refinancing a Car Loan Affects Your Credit

Generally speaking, refinancing a car loan shouldn’t affect your credit too much. When you shop around for a loan, lenders will do what’s called a hard pull on your credit. If you apply at multiple places within a 45-day period, credit reporting agencies will count these hard pulls as one instance. If you’re applying for a new refinance loan every couple of months, then that can have a negative impact on your score.

There are many companies (and loan comparison sites) that do a soft pull on your credit, meaning that your credit score won’t be affected. You can get prequalified this way to check out promotional offers and see which lender is offering the lowest rate for you.

When you successfully refinance a loan, your old loan will be considered closed. If you’ve had that loan for a long time, it could affect your credit because some credit scoring models look at the average age of your accounts to determine your score. Your score could decrease slightly depending on any other loans you have, but it should eventually go back up if you’re making payments on time.

It’s not always easy to refinance an auto loan with bad credit history, but it may be possible. If your credit score has improved or rates have dropped, it could be worth the effort. As always, do your research and make sure you understand what you’re getting into before signing the dotted line.

If you just started your car-buying process and are debating leasing vs. buying, check out our blog post on the most important considerations.

FAQs on Refinancing an Auto Loan with Bad Credit

Below are the 3 most common questions asked when refinancing an auto loan with bad credit.

Can I refinance my auto loan with bad credit?

Yes, though it depends on the lender. Some lenders offer refinancing options for individuals with poor credit, but the interest rates and loan payments will be higher.

When can I refinance my car with bad credit?

If you have poor credit, then consistently making payments on your current loan and building a track record of reliability may encourage lenders to give you a loan.

I can’t afford my car payment. What are my options?

You may be eligible to modify the terms of your current loan to get a lower rate if you cannot pay, but otherwise refinancing may be the best option (besides just trading in or selling the car.)

Does refinancing hurt credit?

When you apply for refinancing, your credit score will take a small dip as the lender makes a hard inquiry on your credit. Refinancing may also hurt your credit score by reducing the average age of your accounts and increasing the number of accounts.

Check Your Rate

You May Also Like

Related Resource Center
Want to consolidate high-interest debt, renovate your home, or manage an unexpected expense? A personal loan could help.
Sep 25, 2023
7 min read
Top 4 Reasons to Get a Personal Loan
Home repair costs have increased. Knowing upfront what you can expect to pay for certain types of improvements can help you prepare financially and save you a lot of stress.
Aug 28, 2023
8 min read
knowing common home repair costs can help you prepare for the future
It's common to see the buy now, pay later payment option at online checkout — but should you use it? Learn what BNPL is, how it works, and alternatives for borrowing money.
Aug 22, 2023
5 min read
Woman's hands on keyboard of laptop displaying image of shopping cart and buy now, pay later text
Anytime the Federal Reserve decides to raise interest rates, it typically creates a ripple-effect throughout the economy. We take a look at some of the ways rising rates influence how you borrow and spend, and the impact rising rates can have on variable rate debt you may be carrying.
Jul 17, 2023
7 min read
Torso of woman wearing pink sweater sitting at paper-strewn desk with phone in hand and using calculator.
Whether you're completing a large home improvement project or paying down high-interest rate credit cards—a personal loan can give you the boost you need to reach your financial goals.
May 21, 2023
12 min read
Where to Find the Best Personal Loans in 2022
Related Impact
From groceries and diapers to Halloween costumes for pets, nearly 60% of American consumers prefer to shop online for everyday items that make life more convenient, comfortable, and enjoyable. And with rising prices showing no signs of stopping anytime soon, we’re pleased to introduce StackitTM from LendingClub Bank—a new browser extension that automatically finds and rewards eligible members with coupons and cash back for extra savings at more than 15,000 favorite online retailers.
Nov 13, 2022
2 min read
blog header stackit 765x430 v1-1
Even in today’s low-yield, high-inflation environment, it’s essential to keep a certain amount of money in an easy-to-access checking or savings account for things like daily household and emergency expenses, or to meet short-term financial goals.
Oct 2, 2022
5 min read
LendingClub Rewards Checking Nationally Certified as Trusted, Afforda
Since 2007, LendingClub has been on a mission to deliver a world-class experience to all our members. This month we took a moment to reflect on the more than four million members who have chosen LendingClub as their partner to help them reach their financial goals.
Apr 19, 2022
2 min read
Illustration of large number 4 and letter M made up of colorful, tiny illustrations of ethnically diverse people
In March 2022, we hosted our first quarterly webinar where we celebrated our one-year anniversary as a digital marketplace bank. 
Mar 6, 2022
less than a minute read
Blog-post
LendingClub completed the acquisition of Radius Bank in February 2021. At that time, in addition to the direct-to-consumer deposit business, we inherited a fintech partner program, and several lending businesses. As we reach the one-year anniversary of the acquisition, and in conjunction with the conclusion of a strategic review of our business operations, we have made the decision to discontinue certain businesses that don’t fit our mission.  
Jan 2, 2022
2 min read
Man in blue button up shirt and glasses smiling
Related FAQ's
To qualify for a lending product with LendingClub Bank, you must...
Jun 7, 2023
less than a minute read
Our process is fast—most members are approved within a few hours. The exact turnaround time you’ll see for your application will depend on your unique details.
Jun 7, 2023
less than a minute read
It depends on how you plan to use your loan.
Jun 7, 2023
2 min read
Your annual percentage rate (APR) is the overall yearly cost of your loan, including fees and interest. The APR on LendingClub Bank loans ranges from 6.34% to 35.89%.
Jun 7, 2023
less than a minute read
If you're ready to pay off your loan, congratulations! That’s a big financial step.
Jun 7, 2023
less than a minute read
Related Glossary
{noun} A type of credit that allows the borrower to make charges and payments against a set borrowing limit, paying interest only on outstanding balances.
Sep 6, 2023
4 min read
{noun} The amount of unpaid interest that has accumulated as of a specific date, either on a loan or an interest-bearing account or investment. 
Mar 21, 2023
4 min read
{noun} The total annual cost to borrow money, including fees, expressed as a percentage.
Mar 21, 2023
3 min read
A debt that is written off as a loss because the financial institution or creditor believes it is no longer collectible due to a substantial period of nonpayment.
Feb 7, 2023
3 min read
{noun} An interest rate that remains the same for a set time, usually for the life of the loan.
Feb 4, 2023
3 min read
Change Your Money, Change Your Life
Join our monthly newsletter for tools, tips, and insights to improve your financial health.
  

LendingClub Bank and its affiliates (collectively, "LendingClub") do not offer legal, financial, or other professional advice. The content on this page is for informational or advertising purposes only and is not a substitute for individualized professional advice. LendingClub is not affiliated with or making any representation as to the company(ies), services, and/or products referenced. LendingClub is not responsible for the content of third-party website(s), and links to those sites should not be viewed as an endorsement. By clicking links to third-party website(s), users are leaving LendingClub’s website. LendingClub does not represent any third party, including any website user, who enters into a transaction as a result of visiting a third-party website. Privacy and security policies of third-party websites may differ from those of the LendingClub website.

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

Unless otherwise specified, all credit and deposit products are provided by LendingClub Bank, N.A., Member FDIC, Equal Housing Lender (“LendingClub Bank”), a wholly-owned subsidiary of LendingClub Corporation, NMLS ID 167439. Credit products are subject to credit approval and may be subject to sufficient investor commitment. ​Deposit accounts are subject to approval. Only deposit products are FDIC insured.

“LendingClub” and the “LC” symbol are trademarks of LendingClub Bank.

© 2024 LendingClub Bank. All rights reserved.