Refinance Car Loan with Bad Credit

Yes, it’s possible to refinance your car loan with bad credit, though it’s typically more complex than refinancing with a clean credit file. Specialist lenders are more likely to consider your application than mainstream lenders like banks, but approval will still depend heavily on your individual circumstances.

You’re more likely to be considered for a refinance if:

• You’ve been keeping up with your current repayments
• Your bad credit is older or relates to a paid default
• Your income and expenses can comfortably support the new loan
• You have equity in your vehicle, meaning it’s worth more than what you owe

Refinancing is likely to be more difficult, or unavailable altogether, if:

• You’re currently behind on your existing loan repayments
• Your vehicle has negative equity, meaning you owe more than it’s worth (in this case, you may have to pay the difference out of pocket)
• You have one or more recent or unpaid major finance defaults
• You’re currently bankrupt or under a Part IX debt agreement

Here’s how the process of refinancing a bad credit car loan typically unfolds:

1. Check your current loan and credit position

Before applying, find out your current loan balance and your vehicle’s estimated value, as well as your credit score and what’s on your file. This gives you a clear picture of your equity position and helps set realistic expectations for what a new lender might offer.

2. Apply with a new lender

You’ll submit an application either through a broker or directly with your new lender, providing details about your income, expenses, existing loan and the vehicle itself. If you have bad credit, you’ll need to go through a specialist lender who can work with your situation.

3. Lender assessment

The lender will assess your financial situation, including your credit history, to determine whether you’re eligible and what terms they’re willing to offer. They’ll also factor in your vehicle’s value compared to what you still owe.

4. Payout of your existing loan

If you’re approved, you’ll sign off on the agreement and have your new deal settled. From there, your new lender will typically pay out your existing loan directly, closing it off on your behalf.

5. Begin repayments on your new loan

From here, you’ll start making repayments under the new loan’s terms, rate and conditions. There may be a short crossover period while the payout is processed, but in most cases, the transition happens smoothly without any gap in your repayment obligations.

Refinancing can be a smart financial decision, but it isn’t the right fit for everyone. It’s worth considering whether it makes sense for your situation before applying.

Refinancing may be a good move if:

• Your credit has improved since you took out your original loan, and you could qualify for a better rate
• Your current repayments are putting genuine pressure on your budget
• You’re looking to remove a co-borrower or guarantor from your loan
• Your current loan has no early repayment fees and your new one will have few or no additional costs

Refinancing may not be the right move if:

• You’re already on track to pay off your existing loan soon
• Your vehicle is in negative equity and you can’t cover the shortfall
• Your credit situation has worsened since you took out your original loan, which could mean a higher rate
• You’re behind on your current repayments, as approval is unlikely in this situation

Every situation is different, and what’s right for one person may not be right for another. If you’re unsure whether refinancing makes sense for you, submitting an enquiry with us allows you to speak directly with an experienced broker who can talk through your specific circumstances and help you decide on the best path forward.