Refinancing Car Loans with Bad Credit
Have you ever wondered How Does Car Refinancing Work? And, Does it affect your credit rating?
Car refinancing helps drivers to retain their vehicles when facing temporary financial challenges. It also lowers your monthly car loan installments and this helps you to save up for a better car or buy important accessories. Plus, it’s one of the benefits of having an excellent credit score. If you’re looking for bad credit car dealerships apply with us today and we’ll get you approved fast!
First, here’s 5 common questions every driver has when applying for car refinancing for the first time
Table of Contents
1. Is refinancing your car bad for your credit?
Applying for a car refinancing plan has a small effect on your credit score. When a creditor receives your application, they submit a hard inquiry to credit reference bureaus. You lose five points for each hard inquiry. Smart car owners minimize this effect by applying for car refinancing only where they’re certain of success.
It’s also advisable to seek car refinancing from the same lender because they already know your credit score. Car refinancing can help you to improve your payment history by lowering your current monthly car loan installments.
2. Can I refinance my car with the same lender?
It depends on whether they offer car refinancing. Car retailers make more profit when you purchase a car using an auto loan. Since car refinancing enables a buyer to pay lower monthly installments, the lender makes less profit.
Nowadays, there’s a lot of competition in the auto industry because it’s much easier to buy a car than it was two decades ago. There’s an abundance of well-paying jobs that can enable you to save up for your car’s deposit within 6 months. Plus, you’ll come across hundreds of registered credit unions and lending institutions offering various loans at really affordable interest rates.
3. How long does it take for a loan payoff to show up on your credit report?
It might take 30-90 days for you to see the loan payoff on your credit report. Some creditors update their clients’ credit reports after 30 days while others have a 90-day cycle. That’s why you need to find out how often your auto loan provider updates your debt status.
It’s important to follow up with both your auto loan lender and car refinancing partner. You don’t want to have a wrong credit score because your auto loan lender forgot to update your loan payoff on time.
4. Who will refinance a car with bad credit?
Complete Auto Loans has helped hundreds of car owners with embarrassing credit scores get 100% car refinancing plans. Why is CAL the best option for car owners with bad credit scores? First, CAL is registered and fully compliant with national credit lending laws. This ensures you that you receive reasonable interest charges and repayment periods.
Second, CAL has a good rapport with at least 25 reputable credit lenders with huge capital reserves. Plus, you’ll get sound advice from a team of experienced financial advisors. You can apply and get your car refinancing deal within a couple of weeks.
5. What is the average interest rate?
Car refinancing deals have lower interest rates than auto loans. However, creditors determine both your auto loan and car refinancing deal’s interest rate based on your credit score. Car buyers with a credit score of 520 or less pay double compared to those with 720 going up.
Do you need an Auto Refinance Calculator?
An auto refinance calculator will come in handy to help you:
- Determine the amount of money you can save through refinancing your existing loan
- Determine how the length of your loan impacts your monthly payment
- Understand your new monthly payment
- Compare loan offers to establish the best that meets your needs
Second, How does car refinancing work? Breaking down the process
1. Meeting the new lender’s requirements
First, you need a credit score that matches your creditor’s requirements. CAL provides bad credit car refinancing deals to drivers who have a minimum credit rating of 525. Some auto loan lenders will need to see a major improvement in your credit score in order to give you a car refinancing plan.
Creditors provide car refinancing deals to drivers who own cars that are less than five years old. Age here implies to the year of manufacture as opposed to the period of vehicle ownership. In case you default on payments, the creditor can repossess and resell the car at a reasonable price when it’s still in excellent condition.
Despite obtaining a car refinancing plan from the same lender, you need to show proof of income. Your creditor needs proof of your ability to pay up all installments under the new terms. Some creditors require applicants to submit copies of their paychecks from the past six months. If you’re self-employed, your creditor will need copies of your bank statements.
Creditors also have minimum outstanding balance requirements for car refinancing deals. Some creditors require you to have an outstanding balance of $10,000 while others go as low as $7,500.
Why is this step important? A creditor needs to confirm that you’re indeed the real applicant because some identity thieves apply for car refinancing using their victims’ identities. That’s why you provide a photocopy of your driving license and SSN card when submitting your car refinancing application form.
Expect to see a slight drop in your credit score as your creditor performs a hard inquiry to confirm whether you provided the correct credit rating. Creditors also look at your credit report to see the other types of debts you have and your general payment history with past creditors.
If you have a poor credit score, your creditor will want to know your residence. The creditor can call your property manager to find out how long you’ve stayed there. It’s advisable to maintain your current residence for at least one year to prove that you’re not a runner.
3. Meeting your auto loan lender’s requirements
Car retailers love it when you purchase a car using an auto loan because they make more profit by charging you application fees and interest charges. In fact, some car sellers actually charge you a penalty when you clear all your installments before the agreed schedule.
Applying for a car refinancing deal affects a car retailer’s profit revenue. Why? Because the new deal comes with a lower interest rate and this directly affects profit margins.
In order to compensate for this loss, some retailers demand that you pay a full month’s installment up front. That’s additional to the balance transfer charges you pay to transfer your auto loan from one creditor to another.
4. Loan Payoff
After paying a full month’s installment and balance transfer charges, your auto loan provider approves your new creditor’s request. Your new creditor should pay the full outstanding balance on your auto loan within 30 days. Otherwise, your auto loan lender will continue expecting monthly installments from you because your new creditor hasn’t cleared your outstanding balance.
Once your new creditor pays off your outstanding balance, make sure you download your credit report after 30 days. If the loan pay off doesn’t appear, follow up with your auto loan lender to see whether they cleared your debt in credit reference bureaus.
5. Market value drops significantly
Perhaps one major disadvantage of getting a car refinancing plan is the huge loss in market value. As soon as your auto loan lender approves your car refinancing deal, your car’s value switches from New to Used. Why? Because the vehicle changes ownership from your auto loan lender to your new creditor. You become the rightful owner after paying all your installments.
6. Purchasing the right insurance cover
Did you know that car refinancing providers require credit buyers to purchase a comprehensive auto insurance?
Under credit purchasing, a creditor retains car ownership until you pay the final installment. Despite doing credit rating checks and requesting for proof of income, there’s always a possibility of repossession over nonpayment.
In order to resell it at a good price, the repossessed car needs to be in excellent condition. The only way of ensuring this is by having a comprehensive car insurance cover. In case you incur damages as a result of a hit-and-run driver or vandalism, your insurance company handles all repairs within a couple of weeks.
3. Avoid these six mistakes or else you’ll lose your car refinancing deal
1. Selling the car privately
Car refinancing contracts are non-transferable. Since typical car refinancing deals usually don’t involve cosigners, the creditor expects the car buyer to make all payments. Therefore, there’s no legal provision for you to attempt to transfer or include third-party buyers.
We’ve understood that your creditor retains full motor vehicle ownership until you pay all your monthly installments. This means you have no authority or right to transfer ownership of a car you don’t yet own.
2. Installing forbidden car accessories
We live in a colorful world where drivers spend thousands of dollars on flashy body art and engine enhancement car accessories. You may feel left out owning a plain-looking vehicle because your friends and neighbors have more appealing cars than you do. So, you seriously want to start saving up for expensive accessories.
Despite paying monthly installments, your car dealer cannot allow you to install certain accessories. For instance, a Nitrous Oxide (NOS) kit. Why? Because this kit enables you to drive at dangerous speeds that put the vehicle at a great risk. In addition, installing a NOS kit enhances your car’s appeal to car thieves.
You also need to seek your creditor’s approval when you want to paint your car a different color. Quack technicians will lower your car’s value by applying inferior quality paint. Your creditor will refer you to an auto mechanic shop that does high-quality paint jobs.
3. Relocating to a different state without informing your creditor
Good debtors are honest about their residence and place of employment. Despite your current credit rating, you need to keep your creditor updated whenever you’re planning to relocate to a different state. Failing to provide your creditor with your new residence and place of employment indicates an unwillingness to fully pay off the debt.
If a creditor realizes that you fled, they can file legal action against you. This means that you’ll compensate your creditor for the money they spent tracking you down.
4. Modifying your car
You can modify your car by either installing car accessories or customizing body parts. Creditors forbid customizing your car when under a refinancing deal because it affects resale value. Moreover, your customized car can end up turning off several potential buyers because tastes and preferences vary with personalities.
Some modifications appear harmless but they have terrible consequences. For instance, customizing your ordinary doors into butterfly doors because they look great on Ferraris. In this situation, your creditor will demand that you restore the original doors and cancel your refinancing deal.
5. Staying more than 30 days without an insurance cover
National and federal laws require all motor vehicle owners to have insurance covers. Driving a car without an insurance cover could lead to jail time. A driver can also lose their driving licenses permanently because lacking an insurance cover means that one cannot take care of any liabilities.
Make sure you purchase a comprehensive insurance cover within 30 days after receiving your car refinancing deal. Ask your auto loan provider to refer you to an affordable comprehensive auto insurance provider.
6. Using the car as collateral to borrow a loan
As long as you’re paying monthly installments, the car still belongs to your creditor. Paying installments doesn’t entitle you to use the car as collateral in order to apply for a secured loan. If you default on the new loan, your creditor will encounter several legal hurdles trying to repossess the vehicle. This offense could also lead to a jail sentence due to misleading a creditor by stating false collateral assets.
4. When Does Refinancing a Car Loan Make Sense?
Car refinancing sounds scary to some car owners because they believe that it always affects one’s credit score. But, is car loan refinancing really that bad? If you’re considering applying for a car refinancing plan, the good news is that you don’t need to worry about your credit rating. Plus, a car refinancing deal can help you save up by greatly lowering your monthly installments.
When does refinancing a car loan make sense? Let’s look at five ideal situations where applying for car loan refinancing can actually help you save money.
5. Nine ideal situations where applying for car loan refinancing can actually help you save money
1. Your income reduces by a huge margin
If you’re an entrepreneur, you understand the highs and lows of doing business. One day you have many customers lining up outside your store. Then, the government passes a new law that forces you to increase your prices. Since customers have different purchasing abilities, you lose a good number because they cannot afford the new price. The reducing cash flow worries you because you have auto loan installments to pay.
During the recent 2008-2010 U.S economic recession, a large number of private and public companies implemented massive staff pay cuts in order to stay afloat financially. Smart car owners who still wanted to retain their cars applied for car refinancing in order to get lower monthly installments and extended repayment periods.
2. Your credit score improves significantly
A car refinancing deal helps you to reduce your car loan installments by up to 30 %. However, you need a higher credit score than you had when applying for your auto loan. It also has to fall within the range of excellent credit scores i.e. 719 and beyond.
Let’s assume you had a credit score of 650 when applying for an auto loan. After 12 months, you manage to clear your mortgage and student loans. You download your credit report after a month and you notice your new credit score is 720. That’s great news because you can now get a good car refinancing deal.
3. To get out of an expensive auto loan deal
During recessions and economic busts, interest rates increase because there’s scarcity of capital due to low production of goods and services. Sometimes, these high-interest rates can persist for several months because it takes time for the national economy to stabilize. In this situation, creditors have no option but to impose expensive interest rates on car loans.
If you got a car loan during an economic bust then the economy improves much later, you can save money by applying for car loan refinancing. You don’t need to lie about your income status when convincing your creditor to provide you with an auto loan refinancing deal.
4. You want to save up for a new home
Decent family homes are expensive. Despite this fact, every parent wants their children to grow up in a spacious and safe neighborhood that has adequate social amenities. In order to achieve this dream, you need a lot of money to relocate from your current house to your dream home.
Let’s assume that you live in a two-bedroom rental but feel squeezed because you have four kids. You’re tired of living in a cramped space and wish to relocate to a four-bedroom home in a nice gated neighborhood. How can you achieve this dream? By applying for auto loan financing in order to pay more affordable monthly installments. Then, save the balance in a fixed account until you have enough to pay a good down payment for your dream home.
5. You want to save up for a brand new car
Cars come and go because human beings have dynamic tastes and preferences when it comes to fashion. Take a few seconds and remember the automobile industry during the late 90’s and early 2000’s. Most hip and well-off car owners drove Hummers because they were hot and represented a major achievement in life. However, a decade later, Hummers have virtually fallen off the luxury auto brand grid.
Perhaps you saw a yet-to-be-released truck from your favorite auto manufacturer and you want to own it as soon as it hits the market. So, you create a savings plan and start right away. You can achieve your saving goals using less time by applying for an auto loan plan.
6. You want to pursue further studies
One way of increasing your income is by getting a major job promotion. In order to earn a promotion, you need academic qualifications and sufficient practical experience.
Perhaps you got lucky and got a nice job despite possessing low academic credentials. After five years of acquiring relevant practical experience, you feel confident about taking on greater responsibilities at work. In order to achieve this job position, the CEO requires a candidate who has five-years working experience plus a Masters Degree.
If you have a family, then borrowing a student loan can be unwise because you’re already paying an auto loan and mortgage. However, you can save up at a good portion of your college tuition fees by applying for car refinancing. Even if you save up 50% of your college tuition fees, you can seek financing from your college’s Financial Aid department.
7. Planning a major relocation
Some professions such as acting, medicine, and law enforcement involve frequent movement. Doctors working in the public health sector rarely work in one city for more than five years. The same applies to senior officers working in the police force. Usually, the transfers take place from one federal state to another. Plus, the government posts employees thousands of miles away from home.
Let’s assume you’re a doctor working in North Carolina and your boss hands you a transfer letter. It says that you need to relocate to your new workstation in Utah after six months. Your employer will handle relocation costs but expects you to get a home and a car on your own. You definitely need to save up for rent and other priorities in advance.
8. Saving your small business from collapsing
When the economy experiences a recession, small businesses suffer badly because they lack sufficient capital reserves to weather the national economic storm. An economic recession is bad for business because customers have much lower purchasing abilities than they had during stable economic periods.
In addition to reducing cash flows, small businesses cannot borrow emergency business loans because interest rates shoot up when the economy performs badly. If you don’t want to sell your car or house in order to have sufficient working capital, it’s better to apply for car loan refinancing.
It’s easier to save up lump sums of cash when you pay lower installments. These lump sum savings will help you to run your business smoothly because you don’t rely on credit to purchase stock and pay monthly bills.
9. Saving for an annual vacation
All work without play makes Jack a dull boy.
You definitely deserve a long nice vacation on a beautiful beach or a five-star game park somewhere in Africa because you work hard all year round. An end-of-year vacation will enable you to enjoy the fruits of your labor and refresh your entire body for another season of hard work.
If you’re planning to unwind in a premium hotel or overseas destination, start saving up early. Apply for that car refinancing deal because you need that money to fund all your expenses while on vacation. Make sure you have a fixed savings account.
6. Avoid these mistakes when refinancing a car loan
1. Being ignorant about your credit score
You already know that creditors require you to have an excellent credit score in order to receive car loan refinancing. If you owned several credit cards or borrowed a few bank loans, you had to check your credit score to see whether you qualify for credit. However, some car owners assume that it’s the creditor’s responsibility to check applicants’ credit scores whenever assessing car refinancing applications.
Creditors usually check applicants’ credit scores by doing hard inquiries on various credit reference bureaus. However, some creditors don’t refund car loan refinancing application fees if the applicant’s credit score falls short of the creditor’s requirements. Some creditors charge as high as $500 per application.
Can you imagine how it feels losing $500 because of ignorance?
2. Neglecting to do background checks on the new creditor
Each day, new credit lending institutions emerge online while others set up offices in your city. Despite the presence of various credit monitoring bodies and policies, a few crooks manage to operate without drawing law enforcement’s attention. Perhaps you know of someone or read a newspaper article of car buyers who fell into traps of identity thieves just after applying for auto loans from a particular car dealer.
One way of confirming the identity of the credit institution is by going to the post office and verify the postal address printed in official documents. You may need to get in touch with the Consumer Financial Protection Bureau to verify your creditor’s identity. Use ScamAdviser to check whether the creditor’s website has malware.
Have you heard of the Better Business Bureau? It’s a highly credible consumer-reviews website where you can read real encounters customers had with particular companies. Reading various customer reviews will enable you to know how your potential car refinancing provider treats its clients.
3. Paying for a car you cannot sustain
If your boss implements a huge staff pay cut, your purchasing ability also decreases. Suddenly, you may find yourself struggling with certain expenses. For instance, fuelling your high-end SUV on a daily basis. As time goes by, you find yourself using public transport frequently and driving your car on weekends only.
Rather than spending most of your income on fuel and auto loan repayments, you should downgrade to a fuel-efficient car. Even if you get a car refinancing deal, you still pay high monthly installments because high-end SUVs have high market values.
4. Signing the first car refinancing deal you come across
Smart car buyers know how to get value for money by comparing what every seller in the market has to offer. Perhaps the reason why your auto loan interest is expensive is that you bought your car in a high-income neighborhood. If you decide to get a car refinancing deal from creditors operating in the same location, you’ll get an expensive deal.
The first step to becoming a smart car buyer is by reaching out to experienced car buyers. It could be an older friend or elder relative whom you trust. Ask them to direct you to a good creditor who offers affordable car refinancing deals.
5. Choosing the longest repayment period
In credit purchasing, customers pay more interest when they choose long repayment periods. However, the length of your repayment period determines your monthly installment. That’s why some people choose long repayment periods in order to enjoy short-term financial relief.
One disadvantage of choosing maximum repayment periods is that you risk servicing an upside down car loan. An unfavorable interest rate on your outstanding auto loan balance pushes the entire credit value much higher than your car’s worth. In this situation, you lose value for money because an upside loan turns your car into a huge liability.
6. Does Refinancing a Car Loan Make Sense?
If you no longer can afford to fuel your current car, then it’s better to just pay off the remaining installments instead of applying for car refinancing. However, if you’re saving up for a new house or car, seeking a car refinancing deal is the right move for you to make.
Always make sure you do background checks on potential car loan refinancing providers. Do not allow a creditor to download your credit report if you’re just window shopping for an affordable car loan refinancing plan. This will prevent you from giving away your personal information to identity thieves. You’ll also know if your creditor switches credit terms abruptly by reading consumer reviews on the Better Business Bureau.
Does Car Refinancing Work? Yes, it does!
Now that you’ve read this article, you’re in a better position to provide answers whenever someone asks, “How Does Car Refinancing Work?”
Make sure you check your credit score before applying for a car refinancing plan. Take some time to pay up all your debts because a good payment history directly improves your credit rating. Follow up with your past creditors to ensure they update your debt status promptly.
If you have bad credit, you still qualify for car refinancing. All you need to do is reach out to us through email or phone and we’ll be happy to help you get affordable auto loan refinancing.