If you have bad credit, you might feel like your options are limited when it comes to getting an auto loan or refinancing your current one. This might feel especially true if you are trying to auto refinance with bad credit and high mileage.
But depending on your credit and financial situation, you may still qualify for a loan with better terms than what you have now.
Another roadblock for many is that lenders often won’t refinance loans when the vehicle has high mileage. Since this is usually a hard-and-fast rule with lenders, it’s important to know where to look.
Why it’s hard to get an auto to refinance loan with bad credit and high mileage
Whether you have bad credit, a car with high mileage, or both, you may have a hard time getting approved for an auto refinance loan.
A low credit score is a sign of either two things. It is either you’re new to credit or you’ve made some credit mistakes in the past.
It can also be a sign that you’re not a reliable borrower and are more likely to miss payments. Additionally, a low score may indicate you are likely to default on a loan altogether than someone who has right or excellent credit.
That can be frustrating, especially if your bad credit is due to external circumstances outside of your control, such as a divorce, fraud, or errors on your credit report.
And if they were your fault, you might be turning over a new leaf. However, most lenders have to rely on limited information from credit reports to save time and money.
As a result, you may get denied for an auto loan refinance, or get an offer for a higher rate than what you’re currently paying.
“When you decide to refinance any loan, the ultimate goal is to save money, reduce monthly payments, and possibly secure a lower interest rate,” says Katie Ross, education and development manager at American Consumer Credit Counseling.
The mileage limit varies from lender to lender. However, if you want to get an auto refinance loan with bad credit and high mileage, you’ll need to shop around and ask about limits.
The reason lenders are hesitant about refinancing auto loans on high-mileage vehicles is because such vehicles pose an additional risk. As someone with bad credit, the lender may already view you as a risky borrower. If your car is coming up on 200,000 miles, the lender might wonder if the car will outlast the loan.
If that happens, the lender no longer has collateral on loan. Also, you may no longer want to make payments on a loan where the car no longer runs.
Three steps to getting an auto to refinance loan with bad credit and high mileage
Now that you understand what you’re up against, it’s crucial to have a plan that you can execute to improve your chances of scoring a better loan.
1. Don’t refinance at all
Before you start shopping around for an auto refinance loan, consider asking your current lender if they’d be willing to negotiate the terms of your existing loan.
If you’ve been responsible and made on-time payments while improving your credit, you may be surprised to find a listening ear. Don’t go into the discussion with high expectations, though.
While lenders typically don’t want to lose customers to the competition, they may still be unwilling to change your loan terms. This is especially true if your credit score hasn’t improved since you first took out the loan.
That said, it doesn’t hurt to ask.
2. Start shopping around
There’s no minimum credit score required to refinance your auto loan.
“Each lender has their requirements depending on the remaining balance on your loan, the state you live in, and how many miles are on your car,” says Ross. “Be sure to check with them before moving forward.”
There are plenty of auto lenders out there that work with people in your situation. In addition to banks and credit unions, you can also check out some online auto lenders like LendingClub Auto Loan Refinance, Capital One Auto Finance and MyAutoLoan.com.
As you compare these with other auto lenders, look at interest rates, loan terms, and mileage requirements. If your mileage is so high that no lender will take your case, you might be out of luck.
But if you can find a lender that will accept an older car with mileage like yours, you have something to compare.
3. Work on your credit
Having a hard time finding a lender because of your bad credit score? Work on improving it as soon as possible.
Start by checking your credit score and getting a copy of your credit report. With these two tools, you can see where you need to improve.
For example, maybe your credit card balances are too high, and it’s spiking your credit utilization (which should be 30% or lower, for the most part). In this scenario, work on paying off your balances as quickly as possible, and you should see your score improve within a month or two.
If you have delinquencies on other loans, get them paid up as soon as possible. The longer your payments are late, the more they hurt your credit. While getting current won’t fix your credit immediately, it can stop the bleeding and make room for positive payment history.
This process may take some time, so it’s important to be patient. Once your score is in a better place, all the work you’ve done will be worth it.
The bottom line
It’s not easy to get an auto loan refinance with bad credit and high mileage, but it is possible.
As you follow these steps, you’ll have a better chance of not only finding a lender that will work with you but also get a lower interest rate, potentially saving you hundreds of thousands of dollars over the life of your new loan.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.