While it is possible to purchase a car with bad credit, consumers are often given incredibly high interest rates. It isn’t unusual for a high risk borrower to be given a rate of around 20% or higher. To lower their car payments, borrowers with extremely high rates may want to refinance car loan for a better rate.

How to Refinance Car Loan

Before refinancing, borrowers need to take a look at their loan. The first thing that borrowers should look at is how their interest is being calculated. Lenders will sometimes calculate interest according to the Rule of 78s, which means that 75% of the loan’s interest will be paid in during first half of the loan. It’s also important to make sure that the loan does not carry a prepayment penalty. Both of these factors may cut into a person’s savings and make it more expensive to refinance car loan.

To begin the refinancing process, borrowers will need to contact their lender and ask for the loan’s payoff amount. This is the amount of money it will take to repay the loan in full. Borrowers may also want to ask their lender if anything can be done to lower their interest rate. If a consumer has been responsible with their loan payments, their current lender may be willing to refinance.

If a borrower thinks they would be able to get a better deal elsewhere, they may want to shop around for a new lender. Many lenders will give potential borrowers quotes right from their website. Asking for several quotes is the best way to find a good deal.

Refinance Car Loan: Who Can Benefit from Refinancing?

Borrowers with high interest rates may benefit from refinancing their loan. However, if a borrower’s credit has worsened since they originally obtained their loan, they may not be able to refinance. Lenders will usually only refinance a borrower that has been working to improve their credit. Fortunately, if a borrower is able to refinance, they may be able to save themselves thousands of dollars over the term of their loan.