If interest rates have dropped or you’re unhappy with the rates you’re getting on your car loan, then it might be a good idea to consider refinancing. However, refinancing your auto loan with bad credit can be tricky – especially if your credit score is worse than it has been in the past.
However, there is a solution – and it turns out that refinancing an auto loan with bad credit is easier than you might think.
The first step
As with any potential problem caused by your credit score, take a moment to think of the reasons that your credit score is low. Are there little things that are causing it to be lower than it should? Are you registered to vote where you live? Have you got lines of credit open but not in use?
ClearScore and other websites offer a free service that allows you to get a picture of your credit score (and the reasons that it might be low). These are a good place to start – they’ll help you build up a much better position of your credit score. (If you’re not sure where to start, check out our guide to checking your credit score for free.)
Looking for a service specific for your credit score
Once you’ve got a good idea of your credit score – and have fixed any little problems or errors on your credit report – then it’s time to start looking at your refinancing options. However, finding an auto loan with bad credit takes a little bit of shopping around.
Because – as a rule – interest rates are higher for people with poorer credit scores, the first step is to find prospective companies that offer fair interest rates. After all, you don’t want to refinance and end up paying lots more for your car.
Instead, look for companies that specialise in car loans for those with poor credit. Not only will they offer lower interest rates, but they’re also far more likely to be flexible and understanding of your situation.
Zopa has used the concept of Peer-to-Peer lending and applied it to car refinancing, giving those with poor credit access to better (and cheaper) refinancing options for their cars.
Plus, they base their decisions on your financial situation now, rather than things that have happened in the past – perfect for those who have had a few bumps in the road, but are much more stable now.
All you need to get started is your car’s registration number, mileage, the a few details about your existing car loan and a few other personal details. After that, you can start to compare possible savings by looking at Zopa car loans and switching to them.
What’s also great is that running the comparison doesn’t show up on your credit file and you’ll only receive a Zopa quote if they’re able to offer you a better deal.
If you spot a quote you’re interested in, you can switch very easily. Zopa pay off your existing finance agreement and then you switch onto one of their car loans to pay off the last of what you owe. (Which is great, because these loans have much lower interest rates than most of the other options on the market.)
If you decide to make the switch, Zopa pays off your existing finance agreement and moves you on to one of its new car loans, which have lower interest rates than the rest of its unsecured personal loans.
Is there an alternative to Zopa?
Of course – there are lots of other companies on the market that offer similar deals. There is also another option for refinancing an auto loan with bad credit: taking out a loan with better interest and repayment options and paying off the outstanding balance of your auto loan. In effect, you’re refinancing your auto loan, but with a personal loan with preferable rates and conditions.
(Obviously, this solution doesn’t work for everyone, but it’s worth bearing in mind if you’re struggling to find a company willing to refinance your car. It’s also a great solution if you’re looking to refinance your car to make the payments more affordable.)