Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Dec 5, 2012

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Yes, even people with bad credit can refinance car loans. However, as with most cases of bad credit, borrowers should understand they will likely not receive the best interest rate. However, refinancing can still be worth pursuing since it can reduce interest rates as well as change the duration of the car financing.

Borrowers with bad credit looking to refinance a car loan should first contact their lenders and understand their current balance. Borrowers need to compare their current balance to the value of their vehicle. Bad credit borrowers will only qualify for refinancing if their vehicle’s worth is more than the amount they owe. If borrowers owe more in vehicle debt than the car is actually worth they are considered “upside-down” on their vehicle financing.

Prospective borrowers should understand that they will probably be automatically rejected if they have been missing payments or have had a few gaps in payment in recent months. Those “gaps” can sometimes include a period of deferment granted by the lender. A history of skipped and missed car loan payments shows lenders that a borrower is unreliable and makes unsteady payments. Consequently, there is little reason for lenders to adjust the interest rate and term by paying off one loan in order to lend a new car loan to an unreliable borrower.

Those still interested in a refinance should seek out a sub-prime auto loan lender. Unlike regular lenders, these financers work with people that have fair to poor credit scores. Borrowers seeking to refinance their auto debt will have an improved chance of approval if they submit their application to a sub-prime car loan lender.

Even though borrowers with poor credit are in a bad situation from a financial perspective that doesn’t mean they have to accept the first offer they receive. Just as with any type of financing, borrowers need to compare the interest rates and terms offered by each lender. Comparing the different policies, fees, rates, and terms that different lenders offer can help borrowers save money by selecting the offer that is in their best interest. Additionally, borrowers should remember that if, in the future, they fall under hard financial times, they do not want to owe money to a lender that will slap them with expensive fees for late payments. Borrowers should also try to avoid any lenders that will inflate the refinanced interest rate since this can make their refinanced car loan become “upside-down.”