EchoBay Expert: Two years ago when I was originally approved for my car loan, I was classified as a poor credit risk and had to pay a high interest rate. I want to lower my monthly car payments and was wondering if you thought I'd even have a chance of being approved for a bad credit auto refinance loan?
Loyal Reader: Bad things happen to even the best of people, and just as financial situations improve, so do bad credit scores. Whether or not you'll be approved for a bad credit auto refinance loan will largely depend on what's been going on with your credit for the past two years.
If you've been paying off old debts and paying your bills on time, your credit score has probably improved a great deal and that can mean a much lower interest rate for you. Even if your credit has just improved slightly, you can still benefit from a 1 to 2 percent drop from your current interest rate.
If your credit is in pretty much the same shape it was when you were first approved, but interest rates on bad credit car loans have dropped, you may still be able to refinance at a lower rate. Even an interest drop of as little as 2 percent can mean big savings over the life of your loan.
For example, if you have 48 months left on your car loan and you refinance a $10,000 balance at a 9 percent interest rate, down from an 11 percent interest rate, you would save more than $450 over the life of your loan.
To get the best chance of being approved for a lower interest rate, you'll want to make sure that your credit report is accurate, that you pay down your outstanding debt, and if your credit is still in not-so-great shape, work with a lender that specializes in borrowers who have problem credit.