Bad credit auto refinance sounds like an oxymoron, not to mention next to impossible. However, in just a handful of steps you can successfully refinance your auto loan with bad credit.
The benefits are numerous, including but not limited to:
Enhanced money management
Review Your Credit Report and Scores
Credit reports often contain errors that can crop up annually. Regardless of what caused your bad credit score, it’s essential to confirm that your report accurately reflects the corresponding details. With the aftermath of credit-wrecking events such as bankruptcy, mistakes are common, and you definitely want to address discrepancies and fix them. Since the lender is certainly going to check your score, better that you know beforehand exactly what they’re going to see. Recall that you’re legally entitled to one free credit report annually from either of the three major credit agencies:
How to Get a Free Credit Report
You may request a free credit report through AnnualCreditReport.com. Each credit agency offers the option of a virtual report or a printed report mailed to you. If you spot errors on your credit report, you must send dispute letters to two types of parties, which include:
Credit reporting agency
Company or organization that shared incorrect information about you with the credit reporting agency
You can review and download free sample dispute letters on the website of the Federal Trade Commission (FTC). The FTC also recommends other steps you should take to successfully challenge errors on your credit report.
Pay On Time
Bad credit auto refinance is possible after just six to 12 months of consistent timely payments, states the personal finance website NerdWallet.com. This applies to both the repayment of past car loans and the management of all delinquent balances. The effects of keeping delinquent balances low and of successfully attending to outstanding payments impact your credit report and score. Consequently, staying on top of credit card payments and other credit payments directly improves your chances of refinancing your auto loan. Positive payment history accounts for 35 percent of most models that major credit agencies utilize to tabulate your score, state’s Credit.com. Similarly, previous auto loan payments carry heavy weight in scoring models that are most popular among auto lenders.
Bankruptcy, Bad Credit and Auto Loan Refinancing
Chapter 7 inevitably leaves you with bad (or subprime) credit. Luckily, there are ways to improve post-Chapter 7 credit prior to refinancing your auto loan. As mentioned above, proof that you paid off (or are still paying off) past auto loans is a huge plus.
Do you have a previous car loan involved in a bankruptcy?
Did you reaffirm that car loan?
Reaffirming a loan means you agree to continue paying it and not wipe it out with your bankruptcy filing. When you reaffirm a loan, the tradeline appears on your credit report. If you maintained ownership of your car despite your bankruptcy, did not reaffirm your auto loan, but continued to make payments, then your credit reports still may not reflect this. To create history, take your proof of post-bankruptcy payments to the dealer/lender. This helps to establish payment history, which ultimately improves your credit score.
Shop Around For The Lowest Rates
Bad credit doesn’t automatically disqualify you from refinancing your auto loan. It just means that you’re more likely to incur a higher interest rate and related fees than customers with prime credit. To improve your chances, check with two or more lenders. Consider selecting the Auto-Pay option when applying, since this often yields the lowest interest rate possible. Before using a service that compares offers for you, establish a dedicated bad credit auto refinance email address or a free Google Voice phone number to manage the plethora of responses you’ll potentially receive. This is not essential, but it might spare you peace of mind when the hard work of evaluating your choices begins.
Other Considerations and Tips
Be prepared to
Provide proof of steady income
Demonstrate that you can comfortably afford refinance payments
You might also want to consider a lender who specifically serves low-income individuals. Such lenders often have more relaxed criteria and cooperate with disadvantaged groups who have negative or limited credit. Refinancing your auto loan even with bad credit is quite doable. To summarize:
Review your credit report
Correct any errors
Make existing loan payments on time
Keep delinquent balances in check
Pay all outstanding balances promptly
Shop around for the lowest interest rates
Refinancing is a great way to reduce expenditures and manage money. Follow several or all of these steps if you decide that refinancing is for you.