When you have poor credit, it can feel like you’re stuck in a financial rut. Your options for loans and credit lines are limited, and you may be paying sky-high interest rates on the debt you do have.
One option to get out of this situation is to refinance your car loan. This can be a great way to lower your monthly payments and reduce the amount of interest you’re paying. However, there are also some potential drawbacks to refinancing a car loan with poor credit.
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Let’s take a look at the pros and cons of refinancing a car loan with poor credit so you can make the best decision for your situation.
The Pros of Refinancing a Car Loan with Poor Credit
There are a few potential benefits of refinancing a car loan with poor credit:
You may be able to get a lower interest rate. If you’ve improved your credit score since you took out your original loan, you may be able to qualify for a lower interest rate. This can save you money over the life of the loan.
You may be able to extend the term of the loan. If you’re struggling to make your monthly payments, you may be able to extend the term of the loan. This will lower your monthly payments, but it will also mean you’re paying more interest over the life of the loan.
You may be able to trade in your car for a newer model. If you’re upside down on your loan (meaning you owe more than the car is worth), you may be able to trade in your car for a newer model and roll the negative equity into the new loan.
The Cons of Refinancing a Car Loan with Poor Credit
There are also some potential drawbacks to refinancing a car loan with poor credit:
You may end up paying more in interest. If you extend the term of the loan, you may end up paying more in interest over the life of the loan.
You may end up with a higher monthly payment. If you’re not able to get a lower interest rate, you may end up with a higher monthly payment.
You may damage your credit score. If you’re not able to make your payments on time, you may damage your credit score.
You may have to pay fees. Some lenders charge fees for refinancing, which can add to the cost of the loan.
You may not be able to refinance. If your credit score has not improved, you may not be able to qualify for a refinance loan.
Before you decide to refinance your car loan, be sure to consider all of the pros and cons. This will help you make the best decision for your financial situation.
