If you have bad credit, your car loan refinancing options are few. Here are some tips on improving your chances.

Thinking of refinancing your bad credit car loan? 

Refinancing a car loan involves switching lenders or your existing car loan to get a better interest rate, reduce your monthly repayments, or for better loan features. 

However, there aren't too many options in regards to refinancing a car loan with a bad credit score. It's uncommon for financiers to even allow a refinance of a standard car loan.

There could be ways around this though, as long as your current bad credit car loan has been conducted well and you have not had any missed payments when they were due.

However, it's unlikely you'll be able to keep your current car and refinance your loan.

Trade-in to get a better deal

The simplest option is to trade in your current car to payout your existing bad credit car loan. You can then look at financing a replacement vehicle.

You might look at replacing your vehicle with a cheaper option to help reduce the size of your lend. Provided you conducted your previous loan perfectly you might find that you have more options and access to lower rates than on your previous loan, but this will depend on your individual circumstances.

What is ‘Correctable Credit'?

Correctable credit is the term used when a client that previously had poor credit history was able to improve their situation by perfectly conducting a bad credit loan after the credit issues appeared on their credit file.

This could show lenders that the client has learnt from their mistakes and are ready for another chance.

Once lenders can see that you have had “correctable credit”, a lot more options could open up, which may allow you to negotiate a better car loan deal.

What do you need to have demonstrated? 

To demonstrate that you are a more responsible borrower, it can help if you:

  • Have consistently made your existing car loan repayments on time
  • Have consolidated or paid off any other debts or liabilities 
  • Have Improved your financial situation such as increased your regular income 

These steps can help show potential lenders that you are less of a risk as a borrower and therefore a more suitable applicant for better car finance. 

Want a little more information on improving your credit report? Read our guide on how to establish a good credit history

Other options for refinancing with bad credit

One of the only other options would be to apply for an unsecured personal loan to payout the bad credit car loan.

Often these interest rates are higher than standard car loans, but could still be less than many bad credit car loan interest rates.

The only problem with this option is that it could be more difficult to obtain approval for this kind of car financing, especially if you already have outstanding debts.

One important factor to consider is that some lenders may charge a penalty or fee for paying off your current loan earlier than previously agreed. So make sure to check the terms of your loan to avoid paying any hidden costs if you do decide to refinance. 

How do you apply to refinance with bad credit? 

While there is no set application process for refinancing a car loan with bad credit, at CarLoans.com.au our car finance brokers can provide you with a free car loan assessment.

This assessment requires a few personal details and will  determine what range of financial products would suit your needs best as well as provide you with the estimated interest repayments.

If you currently have a bad credit rating and are looking to refinance your existing car loan, talk to one of our expert car finance brokers today to discuss your options.