A large number of people in the United States purchase their vehicles with the help of financing. Not many individuals have enough cash sitting around to simply walk into a car dealership and write a check. This is why about 107 million Americans currently have car loans. That equals out to over 40 percent of the adult population.
For some people, it’s possible to refinance a loan in order to get a better deal. These waters can be a bit more confusing for people who have struggled to pay back loans in the past. Here’s what to know about whether you should refinance your car with bad credit.
What Does Refinancing Mean?
People who have never refinanced a loan before might be unclear about what refinancing actually means. When you borrow money, you agree on certain terms for duration and interest, usually referred to as annual percentage rate (APR). These conditions will determine how much money you’ll have to pay over the life of the loan.
It’s important to know that a variety of factors go into determining the composition of a loan. Your credit score is certainly crucial. Strong credit will get you better loan terms. But the overall state of the economy plays a big role in lending practices as well. You want to refinance your loan if you can get a better rate than your current one. You might also want to refinance if you decide to lengthen or shorten the life of the loan.
Can You Refinance a Loan with Bad Credit?
Everyone wants to save money. This is the whole point of refinancing on your loan. But saving is even more important when you have bad credit. Some people assume bad credit refinance car loan agreements are possible. This, however, isn’t the case. It will likely be more difficult for you to refinance with bad credit. Lenders want to give their money to people who are going to pay them back. You can show this by consistently paying on time. So even if your credit isn’t the greatest, you have a chance to refinance if you show strong patterns of reliability.
What to Look for When Refinancing a Car Loan
The most important thing to consider when refinancing your car loan is whether you’ll be getting a better deal. There’s no point in refinancing if you’re not saving money. And definitely don’t do it if you’ll actually end up with worse loan terms. You should also look out for certain charges and fees added to the loan. These might be levied against you if you’re late on a payment. Make sure to carefully go through the loan carefully before you sign anything. There’s also nothing wrong with asking questions and taking your time. If someone’s trying to rush you, you shouldn’t trust them.
What Do You Need to Refinance a Car Loan?
Once you’ve determined you can improve your loan situation by refinancing, you’ll need to gather a few things. This will mostly be supporting documents to prove your credit history.
- social security number.
- current and previous address.
- employment information.
- earnings information.
- information about your current lender and loan.
- your current loan payment and balance.
You’ll also need to tell the lender your vehicle’s make, model, and year, its mileage, and its vehicle identification number (VIN). A lot of people will automatically get rejected from refinancing because they don’t include one or more of these things in their application.
Refinancing your loans is a great way to save yourself some money. It’s definitely not as easy to do this when you have poor credit. However, it’s not impossible. And remember: paying off your loan is one of the best ways to rebuild credit. Refinancing can help you do that.