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Refinance a car loan with bad credit
There are times when we all need a little extra help when it comes to our finances, and buying and then refinancing a car can be difficult if you have a bad credit rating, Difficult maybe, but by no means impossible, though you need to be clear about what you're doing when you want to refinance a car loan with bad credit.
It's not unusual for people to have, or have had, a poor credit rating at some stage of their life and there are a number of reasons this could have happened to you. There are, however, lenders who will look into your circumstances if want to apply to refinance your car, and as long as you demonstrate you are dealing with the issues, you may be offered a loan.
How does refinancing a car loan with bad credit work?
Put simply, when you refinance a car, you find a different lender to switch to. Your reason for wanting to refinance may be to do with a problem such as losing a job while paying off your original car loan. By refinancing, you get the opportunity to be offered a lower interest rate and payment options that may make your car loan easier to repay. You could also be offered low or no fees for application and set up of the refinancing loan. However, bear in mind that with bad credit, you may not be offered as rates as low as those for someone with a good credit rating. It's worth doing plenty of research first, or you could consult a financial broker to help you through the various details.
Why do people refinance car loans with bad credit?
If you have been struggling with car loan repayments due to circumstances that have led to a bad credit history, the option of refinancing is worth exploring. Although you won't find as many lenders willing to assess your situation as you would if you wanted a standard refinancing package, there are still many out there who may be willing to lend you money to refinance.
What are the main features?
As with any personal loan, your income and other assets will be assessed to see if a lender considers that you will be able to repay a refinancing loan and thus be eligible to borrow. You will borrow an agreed amount and pay it back over a set period, usually between one and five years, with regular monthly payments. Look for introductory deals that have no fees or lower repayments for a given time, but remember that you are very likely to be charged a higher interest rate than normal.
What are the pros and cons of refinancing car loans with bad credit?
Getting a refinancing deal that you can honour may help you to begin to improve your credit rating as well as lowering your repayments and giving you additional time to pay off the loan. Beware of any penalties imposed by your previous lender for paying off their loan early.
Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.
In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.
However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.
Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.
Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders.
A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.
Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.
Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.
Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.
Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.
However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.
Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.
You don’t need good credit to get a car loan, although the worse your credit history, the harder and more expensive it’s likely to be.
Some lenders will do business only with borrowers who have good credit. However, there are other lenders that are willing to offer car loans to borrowers who don’t have good credit. The catch, though, is that they may charge higher interest rates and fees, and also require more paperwork.
If you don’t have good credit and want a car loan immediately, you can search for lenders that work with bad credit borrowers. If you are able to wait, you can work to improve your credit score and then apply for a car loan once you have good credit.
Lenders that provide bad credit car loans tend to be smaller challenger lenders rather than the bigger banks.
Bad credit car loans are a niche product. The bigger banks tend to focus on mainstream car loan finance for borrowers with better credit histories. That’s why smaller lenders tend to be the ones that provide bad credit car loans.
Bad credit car loans can have high interest rates and fees, so it’s important to compare options before submitting an application.
Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.
The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.
The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.
The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.
Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.
Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.
A bad credit car loan is a car loan for borrowers who have ‘bad credit’ or a bad credit history.
Some lenders refuse to offer bad credit car loans, because they believe there is an excessive risk that bad credit borrowers will not repay their loans. However, other lenders are willing to provide bad credit car loans.
Generally, these lenders charge higher interest rates for bad credit car loans than ‘prime’ car loans, reflecting the higher level of risk. Bad credit car loans may also have higher fees than prime car loans.
However, the big advantage of a bad credit car loan is that it allows borrowers with bad credit to access finance. Another advantage is that it could help bad credit borrowers improve their credit rating, assuming they make all their repayments on time.
Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.
You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.
If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.