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How To Refinance An Auto Loan With Bad Credit
By EchoBay Loans Staff Writer

Whether you had bad credit when you initially were approved for your auto loan or if your credit has deteriorated since being approved, there are some things you can do to help increase your chances of being able to refinance your auto loan with bad credit.

Getting the best rate may not be your goal, but instead you may want to extend the term of your loan to include more months so that your monthly payment will be lower. If you want a lower interest rate and a year or more has passed since you were first approved for a bad credit loan, it is possible that your credit could have improved slightly. Even a slight increase in your credit score could mean a reduction in interest rates. This reduction could be as much as one to two points so it is not to be taken lightly. As you can see below, the interest rate reduction would save you about $20 per month and more than $1,200 in interest paid over the life of the loan.

  Original Loan Refinance Loan
Loan amount $20,000 $20,000
Interest rate 13% 11%
Payment $455 $434
Total interest paid $7,303 $6,090

Below are tips to help you when you are thinking of applying for a bad credit auto refinance loan. By following these tips, you can improve your chances of approval for the loan.

1. Request a copy of your credit report
You can request a copy of your credit report once a year from the credit reporting agencies. You can also request a free report within sixty days of being turned down for credit.
Be sure you review your credit report at least annually. There are three credit reporting agencies - Trans Union, Experian and Equifax. You will need to request your credit report from all three as each agency maintains separate records.

You are looking for any errors or inaccuracies on your credit report that could be lowering your credit score. It is important to do this before you apply for your loan. If you do find any errors, follow the credit reporting agency's procedures to have the erroneous information removed. If there are errors that are removed, this could also help to increase your credit score and therefore your chances for approval.

2. Apply with a lender that specializes in bad credit
When you are looking for a lender, seek out one that specializes in working with people with bad credit. Getting approved for a bad credit auto refinance loan can be easier if you approach the right sources. An easy way to begin your search is online. There are hundreds of lenders available and they all have different specialties. Someone who specializes in bad credit will better understand your situation and will be able to offer more assistance.

If you approach a traditional lender for a bad credit auto refinance loan, you will most likely be turned down. This is a waste of time for both you and the lender. If the lender charges an application fee, you could also be out some money. Most importantly, it will show on your credit report that this lender has pulled your credit and will be obvious to the next lender that the loan was denied. This can be a red flag as well as the fact that inquiries on your credit report can lower your score.

3. Reduce your outstanding debt
When lenders are deciding whether to approve you loan, they will be looking at your debt to income ratio. This is the amount of monthly debt you have divided by your monthly gross income. The debt that will be considered on this is mortgage or rent payments, car payments, personal loan payments and credit card payments. By reducing your debt to income ratio, you can also improve your chance of approval for a bad credit auto refinance loan. A lower debt to income ratio means you have more money left over at the end of the month.

4. Get a co-signor
A co-signor is also a great way to improve your chances of approval. In fact, some lenders may require that you have a co-signor. The co-signor on your loan is legally responsible for the debt just as you are. You should seek out a co-signor who has excellent credit and who would have no problem being approved for a loan. When you have this type of co-signor, it lessens the risk for the lender. You may even be able to get a better rate on the loan because of your co-signor.

If you have bad credit and are looking to refinance your auto loan, do not give up hope. It is possible! Bad credit auto refinance loans can be done and you could even save yourself a few dollars depending on how your situation has changed since the original loan was taken out.


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