Refinancing a car with bad credit is possible, but you'll pay higher interest rates and have fewer lenders willing to work with you
Refinancing means replacing your current car loan with a new one, usually from a different lender. When your credit score is low, lenders see you as higher risk, so they charge more interest to compensate. You may still find lenders who will refinance — credit unions, banks that specialize in bad-credit loans, and some online lenders all do this work — but the process takes longer and the terms won't be as favorable as they would be with good credit.
The main reason to refinance with bad credit is to lower your monthly payment if you're struggling to keep up, or to shorten the loan term if your financial situation has improved since you took out the original loan. Refinancing won't erase what you already owe, but it can make the debt more manageable month to month.
Key Takeaways
- Credit unions often offer the lowest rates for bad-credit refinancing, sometimes 2 to 3 percentage points lower than online lenders.
- You need to own the car outright or have paid down enough of the loan that the car's value exceeds what you owe (called being "right-side up" on the loan).
- Lenders will pull your credit report and check the car's value, so you should know both before you start shopping.
- The approval process typically takes one to two weeks once you've submitted documents, though some online lenders give decisions in days.
- Refinancing costs money in fees and closing costs, so calculate whether the monthly savings will outweigh what you'll pay upfront.
Why your credit score matters in refinancing
Your credit score tells a lender how reliably you've paid debts in the past. A score below 620 is generally considered bad credit, though different lenders draw the line in different places. The lower your score, the higher the interest rate you'll be offered, because the lender is betting you're more likely to miss payments.
When you refinance, the new lender will pull your credit report and see every late payment, missed payment, or collection account on your record. They'll also see how much you still owe on the car and compare that to what the car is worth. If you owe more than the car is worth — called being "upside down" on the loan — most lenders won't refinance you, because they'd lose money if you stopped paying and they had to repossess the car.
The interest rate you're offered depends on your score, the car's age and condition, how much you still owe, and how long you want the new loan to last. Rates for bad-credit car refinancing typically range from 9% to 29%, depending on all these factors and the lender.
Where to look for bad-credit refinancing
Credit unions are usually the cheapest option. If you belong to one, ask whether they refinance cars and what their rates are for your credit range. If you don't belong to a credit union, you may be able to join one through your employer, your school, or a community organization. Credit unions typically charge 2 to 3 percentage points less than online lenders for the same borrower.
Banks that do bad-credit lending include some regional banks and some national chains. Call your current bank first — they may offer you a better rate than a stranger would, since they already know your account history. If they won't refinance, ask for a referral or search online for "bad credit car refinance" plus your state name.
Online lenders like LendingClub, Upgrade, and Lightstream advertise bad-credit refinancing and often give you a rate quote without pulling your credit (a "soft pull"), so you can compare offers without damaging your score. Be cautious of lenders who may provide approval or promise to refinance no matter what — that's a sign they may charge predatory rates or hide fees in the fine print.
Documents you'll need to gather
Before you contact a lender, collect your current loan paperwork, your car's title or registration, and a recent pay stub or proof of income. The lender will want to verify that you still own the car and that you have income to make the new payments.
You'll also need to know your car's current value. You can find this on Kelley Blue Book, NADA Guides, or Edmunds by entering your car's year, make, model, mileage, and condition. The lender will order their own appraisal, but knowing the ballpark figure helps you understand whether you're upside down on the loan.
Have your current loan statement handy so you know exactly how much you still owe. The new lender will pay off the old loan directly, so you need to know the payoff amount, not just the monthly balance.
How the refinancing process works
Once you've chosen a lender, you'll submit an process online or in person. The lender will do a hard credit pull, order an appraisal of the car, and verify your income. This usually takes three to seven business days.
If you're approved, the lender will send you a loan agreement showing the new interest rate, the monthly payment, the loan term (how many months you have to pay), and all fees. Read this carefully — some lenders charge origination fees, title fees, or documentation fees that get added to the loan amount.
Once you sign, the lender pays off your old loan directly to your current lender. You'll then make payments to the new lender instead. The whole process from process to first payment usually takes one to three weeks, though some online lenders move faster.
When refinancing costs more than it saves
Refinancing isn't free. You may pay an origination fee (typically 1% to 5% of the loan amount), a title transfer fee, a documentation fee, or an appraisal fee. Some lenders bundle these into the loan, so you don't pay upfront, but you do pay interest on them over time.
Before you refinance, do the math. If your new monthly payment is $50 less than your old one, but you're paying $500 in fees, you won't break even for 10 months. If you plan to sell or trade in the car within a year, refinancing may not be worth it. Use an online calculator to compare your current loan to the new one, factoring in all fees.
Also consider whether extending the loan term (stretching payments over more months) is worth it. A longer loan means a lower monthly payment, but you'll pay more interest overall. If you're refinancing just to lower your payment, you might be better off contacting your current lender to ask about a loan modification instead.
What happens if you're denied
If you're upside down on your loan, most lenders will turn you down. In that case, you have a few options: wait until you've paid down the loan enough to be right-side up, look for a lender that specializes in upside-down refinancing (they exist but charge very high rates), or consider a personal loan to pay off the car loan instead.
If your credit score is very low or you have recent late payments, some lenders may still refinance you but at a much higher rate. It's worth shopping around — rates vary widely, and what one lender won't touch, another might offer at a reasonable price.
If you've been denied by multiple lenders, focus on improving your credit score before you try again. Pay all bills on time for the next few months, pay down credit card balances, and check your credit report for errors that you can dispute.
Frequently Asked Questions
Can I refinance if I'm behind on my current car payments?
Most lenders won't refinance if you're currently late on payments. You'll need to bring your account current first, then wait a few months before explore. Some lenders will refinance if you're only one or two payments behind, but they'll charge a higher rate.
What's the difference between refinancing and getting a personal loan to pay off the car?
A car refinance is a new car loan secured by the car itself. A personal loan is unsecured debt, so it usually comes with a higher interest rate, but you don't risk losing the car if you can't pay. Personal loans make sense if you're upside down on the car or if no car lender will work with you.
Will refinancing hurt my credit score?
Yes, but usually only temporarily. The hard credit pull will drop your score by a few points, and opening a new account will lower your average account age. However, if refinancing lowers your monthly payment enough that you stop missing payments, your score will recover and improve over time.
How long does refinancing take from start to finish?
Most lenders take one to three weeks from process to funding. Online lenders sometimes move faster — some give approval decisions within days. The longest part is usually the appraisal and income verification.
Can I refinance a car I'm still paying off?
Yes, that's the whole point of refinancing. As long as you owe less than the car is worth, you can refinance the remaining balance into a new loan.