Refinancing with bad credit is possible, but you'll pay more for it
You can refinance a car loan with bad credit, but lenders will charge you a higher interest rate than someone with good credit would get. The core trade-off is straightforward: a lower rate saves you money each month, but only if the new rate is meaningfully lower than what you're paying now. With bad credit, that gap shrinks. A lender might offer you 9% when you're currently at 11%—a real saving—but won't offer you 4% like a borrower with a 750 credit score would receive.
The mechanics of refinancing don't change: you explore to a new lender, they pay off your old loan, and you make payments to them instead. What changes is who will lend to you and what they'll charge. Bad credit doesn't lock you out of refinancing entirely, but it narrows your options and raises your costs.
Key Takeaways
- Refinancing with bad credit makes sense only if your new rate is at least 1 to 2 percentage points lower than your current rate, because lenders will charge you a higher rate than borrowers with good credit.
- Credit unions, banks that specialize in bad-credit lending, and some online lenders will refinance bad-credit auto loans, but each charges different rates and has different requirements.
- Your current loan balance, the car's age and mileage, and how much you still owe compared to what the car is worth all affect whether a lender will refinance you and at what rate.
- Pulling your credit report before you explore lets you see what lenders will see and dispute any errors that are dragging your score down.
- Multiple refinancing inquiries within 14 days count as a single hard inquiry on your credit, so you can shop around without extra damage to your score.
Why your credit score matters more in refinancing than in the original loan
When you first bought the car, the dealer's finance office had leverage: you wanted the car that day. They could offer you a high rate and you'd often accept it because the alternative was walking away from the purchase. Refinancing is different. You already own the car. The lender has no urgency to work with you, so they price the risk of your bad credit directly into the rate.
A score below 620 is typically considered bad credit by most lenders. Between 620 and 659, you're in the subprime range. The lower your score, the fewer lenders will touch your loan, and those who do will charge rates that may not save you enough to make refinancing worth the effort. If your score is below 580, you may find that no mainstream lender will refinance you at all, and you'll be limited to credit unions or specialized subprime lenders.
The age of negative marks on your credit also matters. A late payment from two years ago hurts less than one from two months ago. If you've had recent missed payments, late fees, or a repossession, most lenders will decline you or charge a rate so high that refinancing doesn't make financial sense.
Where to find lenders willing to refinance bad-credit auto loans
Credit unions are often the most forgiving option for bad-credit refinancing. They're member-owned, not profit-driven, and they often have more flexible underwriting than banks. If you belong to a credit union—through your employer, your school, or your community—start there. Many credit unions will refinance loans from other lenders, and some will work with members who have credit scores in the 580 to 620 range.
Banks that specialize in subprime auto lending exist specifically to serve borrowers with bad credit. LendingClub, Upgrade, and Pave are online lenders that refinance bad-credit auto loans. Traditional banks like Wells Fargo and Bank of America also have bad-credit refinancing products, though their rates tend to be higher than credit unions'. Call your current lender first—many will refinance their own loans at a better rate than you'd get elsewhere, even with bad credit, because they already know your payment history with them.
Online marketplaces like LendingTree and Bankrate let you enter your information once and receive offers from multiple lenders. This is useful for bad-credit borrowers because it lets you see your options without explore to each lender individually. Be aware that these sites make money by selling your information to lenders, so expect phone calls and emails after you submit.
The numbers that determine whether a lender will refinance you
Lenders look at four things when deciding whether to refinance a bad-credit auto loan: your credit score, your payment history on the current loan, how much you owe compared to what the car is worth, and the car's age and mileage.
If you've made every payment on time since you took out the original loan, that's your strongest argument for refinancing despite bad credit. A lender sees that you've been reliable with this specific loan, even if your overall credit is poor. If you've missed payments or paid late, refinancing becomes much harder.
The loan-to-value ratio—how much you owe divided by what the car is worth—matters because it tells the lender how much they'd recover if they had to repossess and sell the car. If you owe $15,000 on a car worth $18,000, you're in good shape. If you owe $15,000 on a car worth $12,000, you're underwater, and most lenders won't refinance you. Cars older than 10 years or with more than 120,000 miles are harder to refinance because their value drops quickly and they're more likely to need expensive repairs.
How to improve your chances of getting approved
Pull your credit report from AnnualCreditReport.com before you explore anywhere. This is the only free source authorized by the federal government, and it's the report lenders will actually see. Look for errors—wrong payment dates, accounts that aren't yours, duplicate entries. Dispute any errors you find directly with the credit bureau. Errors can drag your score down by 50 to 100 points, and fixing them takes 30 to 45 days but costs nothing.
If you have a co-signer with better credit, adding them to the refinance process can lower your rate significantly. A co-signer is legally responsible for the loan if you don't pay, so they're taking real risk, but it's one of the few ways to offset bad credit in a refinancing process.
Make sure you're current on your payments before you explore. If you're behind, no lender will refinance you. If you're close to catching up, wait until you're fully current, then wait another 30 days. Lenders want to see stability, not a recent scramble to get caught up.
Comparing rates and calculating whether refinancing actually saves you money
Get rate quotes from at least three lenders. When you receive an offer, ask for the annual percentage rate (APR), the new loan term in months, and the total interest you'll pay over the life of the loan. Don't compare just the monthly payment—a longer loan term lowers the payment but costs you more in total interest.
Use a refinancing calculator to compare your current loan against each offer. Input your current loan balance, current interest rate, months remaining, and the new rate and term the lender is offering. The calculator will show you total interest paid under each scenario. Refinancing makes sense only if the total interest saved is at least $500 to $1,000, because refinancing costs money: process fees (usually $0 to $300), title transfer fees (varies by state, typically $50 to $200), and possibly a prepayment penalty on your current loan if your lender charges one.
If the new rate is only 0.5 percentage points lower than your current rate, the savings probably won't cover the costs. Aim for at least 1 to 2 percentage points lower, especially with bad credit, where the rates are already high enough that small differences matter.
What happens to your credit score when you refinance
explore for refinancing triggers a hard inquiry on your credit report, which temporarily lowers your score by a few points. The good news: multiple inquiries from auto lenders within 14 days count as a single inquiry. This is called rate shopping, and it's built into credit scoring specifically to let you shop around without extra damage. So pull quotes from multiple lenders within a two-week window without worrying that each process is hurting your score separately.
Once you refinance, your old loan is paid off and closed. This removes an active account from your credit report, which can lower your score slightly because it reduces your total available credit. But over the next few months, as you make on-time payments to your new lender, your score will recover and then improve. The long-term benefit of a lower interest rate and on-time payments outweighs the short-term dip.
When refinancing doesn't make sense, even with bad credit
If your car is worth less than you owe on it, refinancing is nearly impossible. Lenders won't lend more than the car is worth, so if you're underwater, you're stuck with your current loan. The only exception is if your current lender will refinance you despite being underwater—some will, as a retention strategy, but most won't.
If you're within the last year of your loan, refinancing rarely makes sense. You'd be paying closing costs and fees to save interest on a loan that's almost paid off. The math doesn't work unless your rate is dramatically higher than current market rates.
If your current rate is already below 6% and you have bad credit, you're unlikely to find a lender who will beat it. Bad-credit rates start around 7% to 8% and go up from there. If you're already below that, you got a good deal on your original loan and should keep it.
Frequently Asked Questions
Will refinancing hurt my credit score?
Refinancing causes a small temporary dip—usually 5 to 10 points—from the hard inquiry. Your score recovers within a few months as you make on-time payments to the new lender. The long-term benefit of a lower rate and consistent payments outweighs the short-term impact. Multiple inquiries within 14 days count as one, so shop around without extra damage.
Can I refinance if I'm behind on payments?
No. Lenders won't refinance a loan in default. You must be current on all payments before you explore. If you're behind, contact your current lender about a payment plan or forbearance to get caught up, then wait 30 days before refinancing to show stability.
What if no lender will refinance me?
If your credit is very poor or your car is underwater, traditional refinancing may not be an option. You could try a credit union if you're not already a member, or explore a personal loan to pay off the car loan—though personal loan rates for bad credit are often higher than auto rates. Otherwise, focus on making on-time payments to improve your credit score over time.
Do I need a co-signer to refinance with bad credit?
Not always. Many lenders will refinance bad-credit auto loans without a co-signer, though the rate will be higher. A co-signer with good credit can lower your rate significantly, but they're legally responsible if you don't pay. Only ask someone to co-sign if you're certain you can make the payments.
How long does refinancing take?
From process to funding typically takes 5 to 10 business days. The new lender pays off your old loan, and you start making payments to them. Some lenders are faster; others take longer. Ask each lender for their timeline before you explore so you know when to expect the switch.