Banks and credit unions that refinance bad-credit auto loans
Most traditional banks will not refinance a car loan if your credit score is below 620, and many require 650 or higher. Credit unions, by contrast, often refinance members with scores in the 550–650 range, and some will work with scores below 550 if you have been a member for at least six months. Online lenders and captive finance companies (those owned by car manufacturers) also refinance bad-credit loans, though their rates are typically higher than credit unions charge.
The lenders most likely to consider you are: Navy Federal Credit Union, Pentagon Federal Credit Union, Connexus Credit Union, LendingClub, Upgrade, and Upstart. Each has different membership or may be able to access rules. Credit unions require membership; online lenders do not. Captive lenders like Ford Credit, GM Financial, and Toyota Financial Services will refinance their own loans but rarely those from other lenders.
Your actual approval depends on your current loan balance, the car's age and mileage, your income, and how far behind you are on payments. A lender will pull your credit report and may require a vehicle inspection. If you are current on your loan, refinancing is straightforward. If you are behind, most lenders will not touch the loan until you catch up.
Key Takeaways
- Credit unions refinance bad-credit auto loans more often than banks, and their rates are usually lower than online lenders offer.
- You will need to be a member of a credit union before it will refinance your loan; membership can take one to three days to complete.
- Online lenders do not require membership but charge higher interest rates and may require a vehicle inspection or proof of income.
- Refinancing saves money only if the new rate is at least 1 to 2 percentage points lower than your current rate and the loan term does not stretch beyond the car's remaining useful life.
- If you are behind on payments, most lenders will not refinance until you bring the account current.
Why credit unions are usually the best option for bad credit
Credit unions are member-owned cooperatives, not profit-driven corporations, so they have more flexibility in lending to people with lower credit scores. They also tend to weigh factors beyond your credit score—such as membership history, employment stability, and savings account balance—when deciding whether to refinance. A credit union member with a 580 credit score but steady income and a savings account may get approved where a bank would automatically decline.
Navy Federal and Pentagon Federal are the largest credit unions that refinance bad-credit auto loans and accept members nationwide (Navy Federal requires military affiliation or family connection; Pentagon Federal requires federal employment or military service). Connexus Credit Union accepts members from any state and has refinanced loans for people with scores as low as 500, though approval is not may provide. Local credit unions vary widely in their lending standards, so calling your own credit union to ask about bad-credit refinancing is worth doing before you look elsewhere.
The downside: credit unions move slowly. Approval can take two to four weeks, and you may need to visit a branch or mail documents. If you need cash quickly, an online lender will move faster, though you will pay for that speed in a higher interest rate.
Online lenders and what to expect from their rates
Online lenders like LendingClub, Upgrade, and Upstart do not require membership and can approve you in days. They use alternative credit data—such as bank account history, utility payments, and employment records—to assess risk, which sometimes helps people with low credit scores. However, their interest rates for bad-credit refinancing typically range from 9% to 29%, compared to 5% to 12% at credit unions.
LendingClub refinances auto loans for borrowers with credit scores as low as 600 and offers fixed rates. Upgrade uses a "soft pull" of your credit (which does not lower your score) to give you a rate estimate before you formally explore. Upstart focuses on younger borrowers and those with limited credit history, and it may approve you even if your score is below 600.
Before you explore to an online lender, calculate whether the monthly savings justify the higher rate. If your current loan has five years left and you refinance into another five-year loan at a rate only 2 percentage points lower, you might save $1,500 to $2,000 over the life of the loan—but if the new lender charges an origination fee of $300 to $500, your net savings shrink. Use an auto refinance calculator to compare scenarios before you submit an process.
Captive lenders: refinancing your existing loan with the manufacturer's finance company
Captive finance companies—Ford Credit, GM Financial, Toyota Financial Services, Honda Financial Services, and others—will refinance their own loans but almost never refinance loans from other lenders. If you financed your car through Ford Credit and your credit has improved (or even stayed the same), Ford may refinance you into a lower rate. If you financed through a bank and want to refinance, Ford will not help.
The advantage of captive refinancing is that the lender already knows your payment history and the car's condition. Approval is often faster than with a third-party lender. The disadvantage is that you have no choice of lender—you can only refinance with the company that holds your current loan. If that company's rates are not competitive, you cannot shop around.
To check whether your captive lender will refinance, log into your account online or call the customer service number on your loan statement. Ask whether they offer rate-and-term refinancing (as opposed to cash-out refinancing, which pulls equity from the car). Most will give you a rate quote without a hard credit pull.
How bad credit affects your refinance rate and terms
A credit score below 620 typically results in an interest rate at least 3 to 5 percentage points higher than someone with a score above 740 would receive. If you currently have a 10% rate and your score is 580, a lender might offer you 13% to 15% on a refinance—which means refinancing actually costs you money unless your current rate is even higher.
Lenders also use your debt-to-income ratio (your total monthly debt payments divided by your gross monthly income) to decide whether to refinance. If you carry high credit card balances or have multiple loans, your ratio may be too high even if your credit score is acceptable. Most lenders want to see a ratio below 50%, and many prefer below 40%.
The age and mileage of your car also matter. Most lenders will not refinance a car older than 10 years or with more than 120,000 miles, regardless of your credit score. If your car is older or has high mileage, a credit union is more likely to make an exception than a bank or online lender.
Steps to refinance with bad credit
Start by gathering your current loan documents: the loan agreement, recent payment statements, and proof of insurance. You will also need the car's vehicle identification number (VIN), current mileage, and market value (check Kelley Blue Book or NADA Guides). Lenders use the car's value to decide how much they will refinance; if you owe more than the car is worth, most will decline.
Next, check your credit report at annualcreditreport.com (the only free, official source) and dispute any errors. Even small corrections can raise your score by 10 to 30 points. Then contact two or three lenders—a credit union, an online lender, and your current lender if it is a captive finance company—and ask for a rate quote. Most will give you an estimate without a hard credit pull, which means your score will not drop.
Once you have quotes, compare the total cost, not just the monthly payment. A lower monthly payment sometimes means a longer loan term, which costs more in interest overall. Calculate the total interest you will pay over the life of each loan and subtract any origination fees. If the new loan costs less than your current one, move forward with the process. If not, wait six months, work on raising your credit score, and explore again.
When refinancing with bad credit does not make sense
Refinancing costs money upfront (origination fees, title transfer, and possibly a vehicle inspection) and takes time. If your car will be paid off in less than two years, refinancing rarely makes financial sense because you will not have time to recoup the fees. Similarly, if your current rate is already below 8% and your credit score has not improved significantly, a new lender will not offer you a meaningfully lower rate.
If you are behind on payments, do not explore to refinance. Catch up first, then wait at least three to six months before explore. Lenders see recent late payments as a red flag, and refinancing while behind will either result in a decline or a rate so high that it negates any benefit.
If you are considering refinancing to lower your monthly payment but your car is worth less than you owe (you are "underwater"), most lenders will decline. Some credit unions will refinance underwater loans, but only if you have been a member for at least a year and have a strong payment history.
Frequently Asked Questions
Will refinancing hurt my credit score?
A hard credit pull (which happens when you formally explore) will lower your score by 5 to 10 points temporarily. However, refinancing an auto loan and paying it on time will rebuild your score over time. The short-term dip is usually worth the long-term benefit if the new rate is significantly lower.
Can I refinance if I am still making payments on the original loan?
Yes. You refinance by taking out a new loan that pays off the old one. The new lender pays your current lender in full, and you then owe the new lender instead. You do not need permission from your current lender, and you can refinance at any time.
What if the refinance lender requires a vehicle inspection?
Some online lenders and credit unions require an inspection to confirm the car's condition and mileage. You can usually schedule this at a local mechanic or the lender's preferred location. The inspection typically costs $50 to $150 and takes one to two hours. Budget for this cost when comparing refinance offers.
How long does refinancing take from start to approval?
Credit unions typically take two to four weeks. Online lenders can approve you in three to seven days but may take longer if they require a vehicle inspection or additional documentation. Captive lenders often approve within one to two weeks. Once approved, the new lender pays off your old loan and you receive new loan documents.
Should I refinance if my credit score has only improved slightly?
Only if the new rate is at least 1 to 2 percentage points lower than your current rate. A 0.5 percentage point improvement does not justify the fees and time involved. Use an online calculator to compare the total cost of your current loan versus the refinanced loan over its full term.