Refinancing a car with bad credit is possible, but you will pay more and have fewer lenders willing to work with you

Refinancing means replacing your current car loan with a new one, usually to lower your monthly payment or interest rate. With bad credit, most traditional banks will decline you, but credit unions, online lenders, and some subprime lenders still offer refinancing. The catch: you will likely face interest rates between 15% and 29%, depending on your credit score, how much you still owe, and the car's age and condition.

The process itself is straightforward — you find a lender, they pay off your old loan, and you start making payments to them instead. But bad credit refinancing has real limits. Some lenders will only refinance newer cars (usually 2015 or newer). Others require you to have made your current payments on time for at least six to twelve months before they will consider you. And if you are underwater on your loan (owe more than the car is worth), refinancing becomes much harder.

Key Takeaways

  • Credit unions typically offer the lowest rates for bad credit refinancing, often 2% to 5% lower than online lenders, but you must be a member first.
  • You need to have made your current car payments on time for at least six months, and ideally twelve, before most lenders will refinance you.
  • The car itself must usually be newer than 2015 and worth at least as much as you owe on it for refinancing to be possible.
  • Refinancing costs nothing upfront, but you will pay a new origination fee (typically 1% to 8% of the loan amount) rolled into your new loan balance.
  • Your new monthly payment may be lower even at a higher interest rate if you extend the loan term, but you will pay more interest overall.

Check your credit score and recent payment history first

Before you contact any lender, pull your credit report from AnnualCreditReport.com, which is free and federally required. Look at your payment history for the past twelve months. If you have missed payments on your car loan, credit cards, or other debts in that time, most lenders will turn you down when ready. Even one late payment in the last six months will disqualify you from most refinancing offers.

Your credit score matters, but it is not the only thing lenders look at. A score below 620 is considered bad credit, and you will face the highest rates. But lenders also check how long you have had the current loan, how much you still owe, and whether the car is worth refinancing. If your score is between 580 and 620, you have more options than someone at 550, but you will still pay significantly more than someone with good credit.

If your payment history is clean but your score is low because of old debt or high credit card balances, you may see better rates than someone with recent missed payments. Lenders care more about recent behavior than old problems.

Understand what lenders will and will not refinance

Not every car can be refinanced. Most lenders have strict rules about the vehicle itself. The car must usually be no older than 10 to 15 years (so a 2010 or newer for most lenders in 2024). It must have fewer than 150,000 miles, though some lenders go up to 200,000. And it must be worth at least what you owe on it — ideally more.

To find the car's value, use Kelley Blue Book or NADA Guides. Enter your car's exact year, make, model, mileage, and condition. If you owe $12,000 and the car is worth $11,000, you are underwater. Some lenders will still refinance you, but they will charge a higher rate or require you to pay the difference upfront. Most will straightforward decline.

The loan itself also matters. If you are still in the first few months of your current loan, refinancing may not save you money because you will pay a new origination fee. Most refinancing makes sense after you have been paying for at least a year.

Compare credit unions, online lenders, and subprime lenders

Credit unions are usually your best option for bad credit refinancing. They are nonprofit member-owned organizations and typically offer rates 2% to 5% lower than online lenders. But you must be a member first, and membership requirements vary. Some credit unions let you join based on where you work or live. Others require you to open a savings account or pay a small membership fee. Start with your employer's credit union or a community credit union in your area. The Credit Union Locator at CULookup.com can help you find one you can join.

Online lenders like LendingClub, Upgrade, and Elevate specialize in bad credit loans and can give you a decision in hours. They typically charge 15% to 29% interest, and they will work with scores as low as 550. The downside is speed comes with higher rates, and some online lenders have aggressive collection practices if you fall behind.

Subprime auto lenders like Santander Consumer USA and Westlake Services refinance cars for people with very bad credit, but their rates are the highest — often 20% to 29%. Use them only if credit unions and online lenders turn you down. Avoid any lender that asks for payment upfront or guarantees approval before checking your credit.

Gather the documents you will need

When you contact a lender, have these documents ready: your current loan paperwork (showing the lender's name and your remaining balance), proof of income (recent pay stubs or tax returns), proof of residence (utility bill or lease), your driver's license, and proof of insurance. Some lenders will ask for your vehicle identification number (VIN) to verify the car's value and history.

You do not need to provide the title yet — the lender will handle that once you are approved. But you should know where it is. If your current lender holds the title (which is common), the new lender will contact them directly to release it once the refinancing is complete.

Have your current loan statement handy so you know exactly how much you still owe. This number matters because the new lender will pay it off, and any difference between what you owe and what the car is worth affects your rate.

Understand how your new payment and interest will work

When you refinance, the new lender pays off your old loan in full. You then owe the new lender the same amount you owed before, plus an origination fee (typically 1% to 8% of the loan amount). This fee is rolled into your new loan balance, so you do not pay it upfront.

Your new monthly payment depends on three things: the loan amount, the interest rate, and the loan term (how many months you have to pay it back). With bad credit, your rate will be high, so your payment may not drop much even if you refinance. However, if you extend the loan term from 48 months to 60 months, your payment will fall — but you will pay thousands more in interest over the life of the loan.

Before you accept an offer, use a loan calculator to see the total cost. A $12,000 loan at 24% over 48 months costs about $14,400 total. The same loan at 24% over 60 months costs about $15,200 total. The payment drops from $300 to $253, but you pay $800 more in interest. Make sure the lower payment is worth that extra cost.

Know what happens after you are approved

Once you are approved, the lender will send you a loan agreement to sign. Read it carefully. Check that the interest rate, loan term, and monthly payment match what you were quoted. Some lenders add fees or change terms at the last minute — if something does not match, ask before you sign.

After you sign, the lender typically takes 3 to 7 business days to pay off your old loan and send you new loan documents. During this time, you should continue making payments to your old lender unless the new lender tells you to stop. Once the old loan is paid off, you will receive a payoff letter confirming it is closed. Keep this for your records.

Your first payment to the new lender is usually due 30 to 45 days after the loan closes. The lender will tell you the exact date and how to make payments — usually online, by phone, or by mail. Set up automatic payments if possible to avoid missing a payment, which would damage your credit further.

Frequently Asked Questions

Will refinancing hurt my credit score?

Yes, but only temporarily. When you explore, the lender does a hard credit inquiry, which drops your score by a few points. Opening a new loan account also lowers your score initially. However, your score usually recovers within 3 to 6 months as you make on-time payments to the new lender. The long-term benefit of a lower payment often outweighs the short-term hit.

What if I still owe more than the car is worth?

Most lenders will decline you or charge a much higher rate. Some will refinance if you pay the difference upfront, but that defeats the purpose. Your best option is to wait 6 to 12 months while you pay down the loan, which will increase the car's value relative to what you owe. Then refinance.

Can I refinance if I have missed payments on my current loan?

Not with most lenders. Credit unions and online lenders typically require at least 6 to 12 months of on-time payments before they will consider you. If you have recently missed a payment, focus on making the next several payments on time, then explore. Subprime lenders may work with you sooner, but at much higher rates.

How long does the refinancing process take?

From process to approval usually takes 1 to 3 days with online lenders and 3 to 5 days with credit unions. The lender then takes another 3 to 7 days to pay off your old loan and send you new documents. Total time is typically 1 to 2 weeks from start to finish.

Should I refinance if my payment only drops by $20 a month?

Only if you are extending the loan term and the total interest cost is worth it. A $20 monthly savings sounds small, but over 60 months that is $1,200. However, if refinancing adds $2,000 in total interest, you are losing money. Use a loan calculator to compare the total cost of your current loan versus the new one before you decide.