Refinancing with bad credit is possible, but you will pay more and have fewer lenders willing to work with you
Refinancing means replacing your current auto loan with a new one, usually from a different lender. When your credit score is low, lenders see you as riskier, so they charge higher interest rates to protect themselves. You may still refinance — credit unions, some banks, and online lenders do work with borrowers below 620 credit score — but the new rate may not be much better than what you have now, and sometimes it is worse. The real reason to refinance with bad credit is usually to lower your monthly payment by extending the loan term, not to get a better rate.
Before you start, check what you currently owe on the car and what it is worth. If you owe more than the car is worth (called being "underwater"), refinancing becomes much harder because lenders worry they cannot recover their money if you stop paying. You will also need proof of income, your current loan documents, and your vehicle's title and registration.
Key Takeaways
- Refinancing with bad credit usually means a higher interest rate, not a lower one, so focus on whether a longer loan term will lower your monthly payment enough to matter.
- Credit unions often have the most flexible lending standards for bad credit, so check whether you can join one before approaching banks or online lenders.
- You cannot refinance if you owe more than the car is worth, so confirm your vehicle's current value and your loan balance before you explore anywhere.
- The refinancing process takes one to two weeks once a lender approves you, and your new lender pays off the old loan directly.
- Improving your credit score by 50 to 100 points before refinancing can meaningfully lower the interest rate you are offered.
Where to look for a bad-credit auto refinance lender
Credit unions are usually your best starting point. They tend to look at your full financial picture rather than just your credit score, and they often have lower rates than banks or online lenders. To join, you typically need to live in a certain area, work for a specific employer, or belong to an organization — check CU.org to search for unions you may already be able to join. If you have a checking or savings account at a credit union, ask them directly whether they refinance auto loans for members with lower credit scores.
Banks come second. Call your own bank first, since they already know your account history. If they decline, try regional banks in your area — they sometimes have more flexibility than national chains. Online lenders like LendingClub, Upgrade, and Elevate work with bad credit but charge higher rates to offset the risk. Get quotes from at least three lenders before deciding, because the difference between a 12% rate and a 15% rate adds up quickly over the life of the loan.
Avoid title loan companies and payday lenders, even if they contact you. These are not auto refinance lenders — they lend against your car's title and can repossess the vehicle if you miss a payment. The interest rates are extremely high, often 100% or more per year.
What lenders will ask for and what they will check
Every lender will pull your credit report and look at your score, payment history, and how much debt you currently carry. They will also verify your income through recent pay stubs or tax returns. Have these documents ready before you contact anyone, because it speeds up the process and shows you are serious.
Lenders will ask for your current loan documents — the promissory note or loan agreement from your existing lender — and they will contact that lender directly to confirm your balance and payment history. They will also order a vehicle inspection report or valuation to confirm the car is worth at least what you owe. If the inspection finds major mechanical problems, some lenders will decline or offer a lower loan amount.
Be honest about late payments or defaults on your credit report. Lenders can see them anyway, and explaining what happened (job loss, medical emergency, divorce) sometimes helps. It does not erase the mark, but it shows you understand what went wrong.
How interest rates and monthly payments work when refinancing with bad credit
Your new interest rate depends on your credit score, the age and condition of the car, how much you still owe, and how long you want the new loan to be. With a bad credit score, expect rates between 11% and 21%, depending on the lender and your situation. This is higher than what someone with good credit would pay, but it may still be lower than a predatory loan or a title loan.
The monthly payment calculation is straightforward: the lender divides what you owe by the number of months in the new loan term. If you owe $12,000 and refinance into a 72-month loan at 15% interest, your payment will be roughly $240 per month. If you refinance into a 84-month loan at the same rate, it drops to roughly $205 per month. The catch is that you pay more interest overall because you are paying for longer. Always ask the lender for the total interest you will pay over the life of the new loan, not just the monthly payment.
Steps to take before you refinance
First, get your credit report from all three bureaus — Equifax, Experian, and TransUnion — at annualcreditreport.com. This is free and does not hurt your score. Look for errors: wrong payment dates, accounts that are not yours, or balances that do not match what you owe. Dispute any errors directly with the bureau. Fixing mistakes can raise your score by 10 to 50 points.
Second, pay down other debts if you can. Lenders look at your debt-to-income ratio — how much you owe compared to what you earn. Paying off a credit card or personal loan before you refinance the car can improve your ratio and lower the rate you are offered.
Third, make sure you are current on your existing auto loan. If you are behind on payments, most lenders will not refinance you until you catch up. Being current also shows lenders you are managing the loan responsibly.
Fourth, wait at least 30 days between credit inquiries. Each time a lender pulls your credit, it lowers your score slightly. Multiple inquiries in a short time signal desperation and can hurt your rate. If you are shopping around, do all your applications within a two-week window so the inquiries count as one "rate shopping" event in the scoring model.
What happens after you are approved
Once a lender approves you, they will send you loan documents to sign. Read these carefully — they show the interest rate, monthly payment, loan term, and any fees. Some lenders charge origination fees (usually 1% to 5% of the loan amount) or prepayment penalties if you pay off the loan early. Ask about these before you sign.
The new lender then pays off your old loan directly. You do not send money to both lenders. The old lender will send you a title release or lien release, which the new lender will file with your state's motor vehicle department. This process takes one to two weeks. During this time, you still make payments to your old lender until they confirm the loan is paid off.
Once the refinance is complete, you will make payments to the new lender. Update your insurance company with the new lender's name, because they need to know who holds the lien on the car.
When refinancing does not make sense
Do not refinance if you are underwater on the loan — if you owe more than the car is worth. Lenders will not refinance this situation because they have no security. If you are only slightly underwater, some credit unions will refinance if you add cash to the deal, but this defeats the purpose.
Do not refinance if you are close to paying off the car. If you have only 12 months left on a 60-month loan, refinancing into a new 60-month term means you pay for an extra 48 months. The savings on your monthly payment will not make up for the extra interest.
Do not refinance if the new rate is only slightly lower than your current rate. If you are paying 16% and a lender offers 15%, the difference is only $10 to $20 per month on a $12,000 loan. Factor in any fees, and you may break even or lose money.
Frequently Asked Questions
Will refinancing hurt my credit score?
Yes, but temporarily. The lender's credit inquiry will lower your score by a few points, and opening a new loan account will lower it further. However, your score usually recovers within three to six months as you make on-time payments to the new lender. The long-term benefit of a lower monthly payment often outweighs the short-term dip.
Can I refinance if I am behind on my current loan?
Most lenders will not refinance you if you are behind on payments. You will need to catch up first. Once you have made three to six months of on-time payments, you become a better candidate. Some credit unions are more flexible, so ask before you assume it is impossible.
What if my car has high mileage or is very old?
Older cars and high-mileage vehicles are riskier for lenders because they are more likely to break down. Some lenders have age or mileage limits — for example, they will not refinance cars older than 10 years or with more than 120,000 miles. Ask lenders about their limits before you explore. Credit unions tend to be more flexible on this than banks.
How long does the refinancing process take?
From the time you submit your process to the time your new lender pays off the old loan usually takes one to two weeks. Some online lenders are faster — as little as three to five business days — but they often charge higher rates. The payoff of your old loan happens automatically; you do not need to do anything.
Should I wait to refinance until my credit score improves?
If your score is very low (below 580), waiting three to six months while you pay bills on time and pay down debt can raise it 50 to 100 points, which can lower your refinance rate by 2% to 4%. Calculate whether the savings are worth the wait. If you are struggling with your current payment, refinancing now may be the right choice even at a higher rate.