How to Refinance a Car Loan With Bad Credit

If you have bad credit and want to refinance your car loan, here’s some good news: Bad credit does not mean you’re stuck with a bad loan.

Lenders will look at your overall financial picture when you apply, so you could still get a loan with a lower interest rate and better terms, though your credit score is still a big factor in the final rate.

What It Means to Refinance a Car Loan

Refinancing a car loan means replacing your current loan with a new one. About 10% -15% of car loans get refinanced, depending on market conditions like lower interest rates.

The goal is to make your financial life easier, whether it’s getting a better interest rate or lower monthly payments or more time to pay off the loan.

Refinancing is basically a restructuring of debt. The terms of the new loan will be different, but you’ll still owe the outstanding principal.

Considering the average monthly payment on a new car loan was $767 in 2026, a good refinancing deal can save you some serious money.

That’s assuming you can get one when you have bad credit.

Can You Refinance a Car with Bad Credit?

The better your credit score, the easier it is to get any type of loan. That does not mean it’s hopeless to refinance a car loan if you have bad credit. Challenging, perhaps. But not hopeless.

If your credit score is below 600, lenders are going to look long and hard at your loan application. The good news is your credit score is not the only thing they’ll consider.

They’ll look at your income, how much you owe in other debts, your payment history and the odds of a rich aunt or uncle co-signing on the loan. Given those variables, it’s not unheard of for someone with a sub-500 credit score to get refinancing.

If you are unsure whether it’s worth the trouble to apply, consider how much that process costs:

Nothing, at least upfront.

So, other than time, you really have nothing to lose by trying to refinance your car loan when you have bad credit.

What Lenders Look at Besides Your Credit Score

Do you have a job and stable employment history? If the answer is no, don’t waste your time trying to refinance your car loan.

If the answer is yes, you’re in the game even with a poor credit score. Among other things lenders will look at are:

• Debt-to-Income Ratio (DTI). That measures how much of your monthly income goes to debt payments like your mortgage, credit cards, and other loans. For instance, if you bring home $4,000 a month and pay $2,000 a month toward debt, your DTI is 50%. A good DTI for a car loan is 35% or lower.
• Loan-to-Value Ratio (LTV). This is the amount you want to borrow divided by the value of the car you want to borrow. If you want to borrow $20,000 on a car valued at $25,000, your LTV is 80%. The lower the LTV, the better.
• Down Payment. The bigger, the better.
• Payment History. If you haven’t missed a payment or had a late payment on your current auto loan (or mortgage or other debt), it will increase the odds of refinancing.
• Vehicle Condition. Lenders generally prefer cars that are less than 10 years old, have fewer than 100,000 miles and no body damage or a history of mechanical issues. In other words, if you’re trying to refinance a 2003 Pontiac Sunfire that needs a new transmission, forget it.

When Refinancing with Bad Credit Might Make Sense

There are a lot of reasons to refinance your car loan even if you have bad credit. For one, you might have improved your credit score since getting your current loan.

The average interest rate on new car loans for people with sub-500 credit scores was 16% in April of 2026. The average for people with 600-660 scores was 9.6%. On a $30,000 loan over 72 months, that lower interest rate would have been about $100 less per month.

The terms on your current loan may be unworkable. If you’re eating Ramen noodles six nights a week to have enough money to make your car payment, your stomach desperately wants you to refinance.

If your Loan-to-Value Ratio has dropped below 100%, lenders will look kindlier at your application. If it’s below 80%, odds are decent you’ll get refinancing even with poor credit.

You also may have gotten your current loan from a high-risk lender. They typically charge higher interest rates (even by bad-credit standards) and have exorbitant fees and high repossession rates. If you can refinance through a bank or credit union or reputable website, you’ll probably sleep better.

When Refinancing Might Not Be a Good Idea

Just as there are good reasons to refinance a car loan with bad credit, there are good reasons not to. Don’t do it if your credit score has gotten worse, or interest rates have gone up. You’ll probably get worse terms than you currently have.

Also, don’t refinance if you are close to paying off your loan. Most of the interest is paid early in the loan, so you won’t save much money even with a lower interest payment.

A new loan will have the same old administrative charges, like document and origination fees that inflate the total costs of any loan. Those can negate whatever savings you might make with a refinance.

A new loan will also necessitate a hard inquiry into your credit report. That can take about 10 points off your credit score.

How Refinancing Can Help — Even Without a Lower Rate

You might not get a lower interest rate if you have bad credit, but applying for a car loan might still be a good financial move.

Extending the loan term could make it easier to stay within a budget. For instance, switching from a 48-month payment to a 60-month will reduce your monthly car payment.

You might have made late payments on your current loan. A new loan will let you establish a better payment history and aid you in future refinancing.

Conversely, you might have a good payment record, and it hasn’t boosted your credit score. Lenders are not required to report to the three credit bureaus (Equifax, Experian, TransUnion).

Some lenders only report payments that are missed. Find a lender that will also report your positives to the credit bureaus.

Steps to Refinance a Car Loan with Bad Credit

What’s the actual process once you’ve decided to refinance your car loan with bad credit?

First, review the terms of your current loan. Know how much you still owe, how much you pay each month, how many months are left before paying off the loan and what the interest rate is. Check for prepayment penalties, which might make it worse to even try to refinance.

Check your credit score. Credit bureaus update scores regularly, so you want to have the latest information. A Consumer Reports study showed that 44% of credit reports had at least one mistake. Check your report closely for errors and be ready to dispute any inaccuracies.

Next, find out what your car’s worth. Online valuation tools like Edmunds or Kelly Blue Book will assess the make, model, year, mileage and condition of your car and give you a pretty accurate number to work with.

Once armed with all that information, start shopping around for a loan. Don’t limit your search to banks and credit unions. There are numerous online lenders, some of which specialize in working with customers with bad credit.

After you (hopefully) get some loan offers, closely analyze them. One might have a lower interest rate but higher upfront fees, or vice versa. Crunch the numbers carefully to see which offer makes the most financial sense.

Once you’ve determined the best deal, sign the loan documents, close out your old loan, and pat yourself on the back for refinancing your car loan despite having poor credit. Not everyone has the determination to even try.

Ways to Improve Your Approval Odds

The best way to refinance a car loan with bad credit is to have a cosigner. A cosigner is somebody who agrees to pay the loan if you can’t.

Cosigners must show they meet income requirements. The potential downside is ruining a relationship if you stop paying the loan and stick your cosigner with the bill.

Try to make at least a 20% down payment. A large down payment reduces the Loan-to-Value Ratio, which lessens the risk for lenders.

Do whatever you can to increase your income or build your credit score. If you’re mired in debt, consider getting financial counseling at nonprofit credit counseling agencies.

Also, try to get prequalified or preapproved for a loan. You just submit your financial data to multiple lenders, who will estimate how much you can borrow.

It’s an easy process and a good way to window shop for a loan. You get handy information without having to make a full application, which would trigger a hard inquiry on your credit report.

Understanding the Trade-Offs of Refinancing with Bad Credit

To fully comprehend the pros and cons of refinancing a car loan with bad credit, you need to understand how interest works. The phrase that pays is “amortization.”

Amor-what?

Amortization is the process of breaking down a large loan into smaller, fixed, and regular payments. With a car payment, you combine the principal (what you paid for the car) and interest, divide that total cost by a set number of months, and make the same payment every month.

Interest is paid on the principal. As you whittle that down there’s less interest to pay each month. The longer your payment schedule, the lower your payments will be because they’re more spread out. The downside of that is the longer the amortization schedule, the more interest you’ll pay because it has more time to accrue.

Not-amortized loans don’t have set payments. For instance, you could pay $100 toward your credit card debt one month, and $10,000 the next.

Taking amortization into account, here are the potential pros of refinancing:

• Lower monthly payments.
• Better credit reports.
• That’s about it, though lower payments generally mean less financial pressure, less lost sleep, and less likelihood you’ll miss a payment and damage your credit score.

Potential cons for refinancing:

• Longer loan terms.
• Worse credit reports.

A new loan means a new amortization schedule. Starting over again usually adds months, if not years, to the day you’ll pay off the loan.

You’ll pay more interest. And the more outstanding loans you have, the harder it is to get a new loan.

Reviewing amortization schedules is something only an accountant could love, but it’s important to crunch those numbers to see if the pros outweigh the cons. A new loan may provide instant relief, but it might just be a quick fix that costs you more in the long run.

How Low Can Your Credit Score Be to Refinance?

Credit scores range from 300 to 850. A “poor” rating is 579 or below. If you fall into that category, don’t give up hope of refinancing your car loan.

If your credit score is below 450, you will probably need a cosigner to even be considered for a loan. If it’s above 450, you might be able to refinance your car loan without a cosigner.

Lenders have different evaluation criteria, but all consider more than just your credit score. They also scrutinize your debt-to-income ratio, your employment history and whether you pay bills on time.

It’s easy to get a loan with an 827 credit score. You’ll have fewer suitors if you have a bad score, but you still need to shop around.

Predatory lenders target people with bad credit scores. They may be accommodating, but they might also charge exorbitant interest rates and have other fees and penalties that will make you wish you’d never learned to drive in the first place.

Shopping for Lenders That Work with Bad Credit

Staying away from predatory lenders is Rule No. 1 when you have bad credit and want to refinance a car loan. Take your business to banks, credit unions, and online lenders.

Credit unions generally offer lower interest rates and better terms, but they have stricter eligibility rules. You also need to be a member, though it usually costs no more than $10 to join.

Banks are usually more convenient and faster, but the terms aren’t as attractive as those offered by credit unions. Online lenders are even more convenient and generally have competitive rates.

Go online and compare offers from all lending institutions. They have different target audiences, risk tolerance, and business models. Even if your credit score would embarrass a hobo, there might well be a lender willing to be seen with you.

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Frequently Asked Questions

Will refinancing hurt my credit?

Yes and (maybe) no. Yes, because refinancing usually requires a hard credit inquiry, which temporarily knocks a few points off your credit score. A new loan also decreases the average age of your credit accounts, which accounts for 15% of your credit score.

No, because refinancing usually means you’ve acquired a lower interest rate and more time to pay your debt. That should make it easier to make monthly payments on time, which will help your credit score.

Can refinancing actually save me money?

Yes. Getting a lower interest rate could save you a lot of money. For instance, a 7% interest rate on a 15,000 loan over 60 months will cost $2,821 in interest. A 5% interest rate would cost $1,984 in interest. You save $837.

How long should I wait before refinancing again?

Wait at least 6 months, though longer is better. Your credit score needs time to recover from hard inquiries, and you need to show a consistent payment history. You might also need to avoid potential prepayment penalties.

What if my car loan is upside down?

If you owe more on your car than its market value, refinancing will be difficult. That doesn’t mean it’s impossible to refinance an upside-down car, but you might need to make a down payment that pays the difference between the loan amount and the car’s value.

Are there alternatives if refinancing isn’t an option?

Yes. You can try to negotiate a better deal with your current lender. Some lenders have temporary hardship programs that lower or even defer payments. Getting a cosigner might induce a lender to refinance a car loan. You could trade in or sell your car for a more affordable vehicle.

If things are really bleak financially, you could sell your car or have it voluntarily repossessed. An involuntary repossession would do more damage to your credit score.

As inconvenient as it might be to have no car, you’d at least be free of an unaffordable debt.