Bad Credit Auto Refinance Loan

There are two scenarios for a poor credit car refi.

Lower Your Monthly Car Payment
The first scenario is for people that have a conventional loan and have experienced bad credit since the inception of the loan. If this is the case, chances are that you are not a good candidate to refinance your auto loan. It is unlikely that the new rate would be lower than your current rate. About the only reason this would make sense is if you had only a short term left to pay on the loan and wanted to extend the term out to lower your payment. Perhaps your income has lowered since you purchased your car. If this is the case make sure you examine the length of the refinance loan, not just the monthly payment.

Example:

A consumer financed $10,000 for 36 months at 7.5% interest and has made 18 payments of $311.06. There are 18 payments remaining and the balance is $5,280.08.

The consumer refinances the loan for 36 months at 16% interest. The payments are lowered to $185.63, a monthly savings of $125.43.

In this example the total of the payments, however, has increased substantially. Without refinancing the total of payments would have been $11,198.16. After refinancing the total of the payments is $12,281.76. A increase of $1,086.30. This scenario is only recommended for people in financial distress and that absolutely have to have a smaller car payment. If stretching the loan term out can be avoided, it is usually recommended to do so.

Pay your Auto Loan off Early
The second scenario is for people who have a loan at a higher interest rate because of bad credit, have paid well on the loan, and now want to lower their car payment. This is a great reason to consider a bad credit auto loan refinance.

In other words, when you initially got your current vehicle loan, you may not have gotten the best loan terms possible. This could have been due to a poor credit rating, low income level, or high debt balances. A poor credit car refi can help. For whatever reason, you may have gotten a higher interest rate back then and might now be qualified for a lower rate.

Example:

A consumer financed $10,000 for 36 months at 21.95% interest and has made 8 payments of $381.65. There are 28 payments remaining and the balance is $8,304.57.

The consumer refinances the auto loan for 25 months at 12.95% interest. The payments are lowered to $380.78 and the loan is paid of three months earlier.

In this example the total of payments has been reduced from $13,716.00 to $12,572.70. A decrease of $1,143.30.