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Refinancing Your Car Loan Even With Bad Credit

Refinancing your car loan with bad credit is possible

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Owning a car represents freedom and convenience, allowing you to travel without relying on public transport, especially to vast regions, bustling cities, and spectacular travel spots. It provides flexibility regarding your travel time and your choice of destinations. A car also represents status, often reflecting your position in life, personality, demeanour and goals. And lastly, it is also an asset that you can later resell for a reasonable price, depending on the age, make and model. 

A car also represents a significant financial investment, whether a dependable Ute, stylish Caddy, the classy Bimmer, or dreamy weapons Lambo and Fezza. Each can consume a big chunk of your funds and usually requires a car loan to become affordable. 

Car loans can give you funds to access better vehicles, besides helping you build up credit scores and tax deductions from interest payments. It also comes with risks, such as high interest rates, rigid loan options, extended loan durations and tight payment schedules that can strain finances.

The worst thing that can happen is when you default on the car loan, opening you up to the risks of repossession of the vehicle, penalty fees and unfavourable credit ratings.

Fortunately, you can quickly resolve this with a financial strategy known as refinancing.

Refuelling Your Old Loan

Yes, it is possible to refinance your auto loan. Refinancing a car loan means replacing an existing loan with another under new terms. This move could help you save money and give you greater flexibility and control over your car loan.

To refinance your car loan, you must generally meet the following criteria:

  1. Have a good track record of paying the car loan repayments on time.
  2. Be at least six months into the current loan (most lenders will only allow a borrower to refinance later).
  3. Have a good credit score—or at least a more substantial score.
  4. Must be an Australian citizen or permanent resident.

Aside from applying for refinancing with a current lender, you can access other online platforms and financial institutions to take advantage of better car loan refinancing options. You must always compare different loans to determine which refinancing deal offers better terms and lower fees.

While refinancing can lower your interest rate and monthly payments, it also extends the term of your loan and the total amount you pay over time. Therefore, it’s crucial to consider your financial situation and goals before deciding to refinance.

Is It Possible To Refinance A Car Loan With Bad Credit?

The short answer is yes. But before you rejoice, you need to consider if finding better car loan terms will be less of a financial burden because the burden of bad credit can be a big challenge to most.

Once you have determined that refinancing is a good move, you can go about researching for auto-refinance lenders who can offer you loan options with less stringent credit requirements that will allow you to qualify even with bad credit scores. The most efficient way to deal with this is to contact a mortgage broker, such as Tiger Finance, with a wide array of lender partners, some of whom may be open to accommodate borrowers with less-than-perfect credit histories.

Is It A Good Move To Refinance When Burdened With Bad Credit?

Yes, it is always a good idea to make the necessary financial decisions to help alleviate your bad credit situation, especially regarding car loans. Among the top 3 reasons that can help fuel your decision are the following:

  • Interest Rates Have Improved – A lower interest rate can positively impact your financial situation, but only if you move fast. Refinancing can allow you to extricate yourself from the high interest rate of your old loan to a more manageable one based on the prevailing interest levels.
  • Car Loan Payments Have Become Unmanageable – Changing circumstances might have caused problems with your payment schedule. Refinancing can allow you to extend your loan with reduced monthly payment terms to help alleviate missing payments and car repossession worries. 
  • Your Credit Has Improved – Nothing is permanent, even bad credit. If you have started to recover financially, refinancing can accelerate your situation by lessening additional burdens from a car loan with high interest. 

The Benefits of Refinancing A Car Loan

Lower Interest Rates: If interest rates have dropped since you took out your original loan or your credit score has improved, refinancing could secure a lower interest rate.

Reduced Monthly Payments: Refinancing could lower your monthly payments by securing a lower interest rate or extending the loan term.

Change of Loan Term: You can adjust the length of your loan term through refinancing. A shorter term means you’ll pay off the loan faster, while a longer term can reduce your monthly payments.

Switch Lenders: If you’re unhappy with your current lender’s service, refinancing allows you to switch to a different lender.

Cash Out: Some lenders may offer a cash-out refinance option, allowing you to borrow more than you owe on the car and receive the difference in cash.

Consolidate Debt: If you have multiple loans, you can consolidate them into one loan with a lower interest rate.

Refinancing Has Risks

Remember, while refinancing can offer potential benefits, it isn’t always the best option for everyone, so you must research to understand all the risks involved and make an informed decision.

Here are some potential risks associated with refinancing an auto loan in Australia, along with some suggestions on how to mitigate them:

Extended Loan Term: Refinancing might extend the term of your loan, which could result in you paying more interest over time. To avoid this, try to keep the original loan term when refinancing.

Early Repayment Fees: Some lenders charge fees for paying off your loan early, which could offset any savings from refinancing. Before refinancing, check if your current loan has any early repayment fees and factor them into your decision.

Higher Interest Rates: If your credit score has decreased since you took out your original loan, you might have a higher interest rate when refinancing. Regularly check your credit score and work on improving it before considering refinancing.

Negative Equity: If the value of your car is less than what you owe on your loan, refinance might be more challenging. This situation develops because the lender may see it as too risky, as they may be unable to recoup the costs by selling the vehicle if you default on your loan. To avoid this, try to pay down your loan to a point where you owe less than your car is worth before considering refinancing.

Additional Fees: Refinancing might come with additional fees, such as application fees, which could offset any potential savings. Always factor in any further fees when calculating the potential savings from refinancing.

Getting In The Driver’s Seat Of A Refinanced Loan

After you have reviewed the pros and cons and decided to proceed with refinancing, these are the steps you need to take:

Step 1 – Compare Car Loans: Compare car loans from multiple lenders and find a loan with a lower rate that suits your needs.

Step 2 – Do the Math: Use a calculator and work out the cost of the new loan, including fees and how the loan length and interest rate affect your repayments.

Step 3 – Check Your Credit Score: Understanding your credit health is pivotal. A better credit score can unlock lower interest rates because lenders see you as less risky.

Step 4 – Collect Necessary Documents: You will need your driver’s license, vehicle registration, your car’s VIN, proof of auto insurance, proof of employment, and a loan payoff amount statement from your current lender.

Step 5 – Apply for the New Loan: Complete the lender’s application process and ensure you have all the necessary paperwork and identification documents.

Step 6 – Discharge the Old Car Loan: You must repay and discharge the old loan.

Step 7 – Start Making New Monthly Payments: Once your new loan is approved and your old loan is paid off, you can start making payments on your new loan.

Alway Consider A Broker

Remember, it’s essential to research and consider your financial situation before deciding to refinance. Consulting with a financial advisor could be beneficial. Some reasons and advantages of seeking advice from an experienced financial broker when refinancing your car loan in Australia:

Access to a Wide Range of Lenders: Brokers have relationships with multiple lenders and can access various loan products, including those that may not be available to the general public. They can help you find the best loan product to meet your needs.

Knowledge of the Market: Brokers keep up-to-date with the latest trends and changes in the market, including interest rates, fees, and lending policies. This knowledge allows them to advise you on the best time to refinance and which lenders are offering the best deals at any given time.

Personalised Service: Brokers provide customised service to their clients, working with them to understand their financial goals and find the best loan product to meet them. They can also advise on improving credit scores, managing debt, and planning for future financial goals.

Negotiating Power: Brokers have negotiating power with lenders, which can result in better loan terms and interest rates for borrowers. They work on behalf of their clients to negotiate with lenders, using their knowledge of the market and relationships with lenders to secure the best deal possible.

Time-Saving: Using a broker can save you time and effort when refinancing your car loan. Brokers handle the paperwork and communication with lenders, which can be time-consuming and overwhelming for borrowers.

Cost-Effective: Using a broker can be cost-effective for borrowers, as the lender pays brokers, not the borrower. Meaning you can access the services of a broker without having to pay any upfront fees.

At Tiger Finance, we always guide you every step of the way with loan experts well-versed in the current situation in the world of financing. You can avail of a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to secure the exact hassle-free loan product that you need.

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