How Many Times Can You Refinance a Car?

Quick Answer:

Most people assume there is a restriction on the number of times you can refinance a car, but there is no legal limit. You can refinance your vehicle as many times as you want. However, that doesn't mean that you should refinance your car every chance you get. There are other factors to consider, such as the impact on your credit score and the amount of money you'll save. 

Refinancing a car means taking out a new loan to pay off the balance of your existing loan. This can be done for various reasons, such as getting a lower interest rate or extending the loan term. While there are some advantages to refinancing, there are still some risks. For example, if you extend the duration of your loan, you pay more interest in the long run. And if you refinance multiple times, you could end up with a negative equity in your car (meaning you owe more than the car is worth).

Let’s explore why refinancing a car might be a good idea and some of the top questions people have about refinancing multiple times.

Table of Contents:

Why Would You Refinance a Car?

Most people refinance their car when they can no longer afford their monthly payments or want to lower their interest rate. When you refinance your car, you take out a new loan with new terms to replace your old loan. Remember that refinancing does not eliminate your debt. Still, it may help you lower your monthly payments or save on interest. And with auto debt continuing to rise, according to the Federal Reserve Bank of New York, it’s no wonder folks are trying to find ways to lower their payments.

Man leaning out of the driver side window with his arms crossed on top of the driver's side door. The text lists reasons why car owners would refinance, which is also outlined in the following paragraph

Let’s take a closer look at these three reasons to refinance a car.

1. You can no longer afford your monthly payments. If you struggle to make your monthly car payments, refinancing may be a good option. By refinancing your car, you may be able to lower your monthly payments and free up some extra cash each month.

2. You want to lower your interest rate. If you qualify for a lower interest rate, refinancing may help you save money on interest over the life of your loan. A lower interest rate could also help you pay off your debt sooner.

3. You want to change the terms of your loan. If you originally agreed to a 60-month loan but now want to pay off your debt sooner, refinancing for a 48-month or 36-month loan could be a good option. Or, if you originally agreed to a 36-month loan but now want to lower your monthly payments, refinancing for a 60-month loan could be a good option for you.

Male hands with one holding a pen while typing on a calculator, while the other is on the keyboard of a laptop

Why Refinance a Car Again?

If you’ve already refinanced your car once, you may wonder if it’s worth refinancing again. The answer to this question depends on a few factors, such as your current interest rate, the terms of your new loan, and your financial goals.

  • High-Interest Rates – If you’re currently paying a high-interest rate, refinancing may help you save money on interest over the life of your loan. For example, let’s say you have a $20,000 loan with an interest rate of 15 percent. Over 60 months, you would end up paying $6,000 in interest. However, if you could refinance for a lower interest rate of 10 percent, you would only end up paying $4,000 in interest, a savings of $2,000.
  • Change of Loan Terms – This is no different than the first time you refinanced. If you want to change the terms of your loan, such as the length of the loan or the monthly payments, refinancing may be a good option for you.
  • Financial Goals – If you have other financial goals, such as saving for a down payment on a house or taking a much-needed vacation, refinancing may help you free up some extra cash each month. For example, let’s say you have a $15,000 loan with an interest rate of 10 percent and monthly payments of $350. If you refinanced for a 60-month loan with an interest rate of 15 percent, your monthly payments would decrease to $308. However, you would end up paying $3,000 more in interest over the life of the loan, but the trade-off could be worth it if you need the extra cash each month to reach your financial goals.

Top Questions About Refinancing Multiple Times

If you’re considering refinancing your car for a second time — or third, or fourth, or… — you probably have questions about the process. Here are some of the top questions people have about refinancing multiple times.

How soon can you refinance a car?

There is no legal time limit on how soon you can refinance a car after purchase or a previous refinance. Still, some technical and administrative considerations might make it more challenging to do so.

Photo of a calculator in the foreground and a faded car in the background. Text lists things to take into consideration when financing which is also spelled out in the article below
  • Lenders’ Policies – The first consideration is the policy of the lender you used to finance your car. Some lenders have strict policies about refinancing and may not allow it within the first year or two of the original loan. In addition, if you try to refinance with the same lender, they may require you to pay a penalty before approving the new loan. This might make it more complicated and expensive to refinance soon after getting a car loan. Having said that, if you’re in a period where lenders are worried about auto loan default rates (like during an economic recession), they may be more willing to work with you on refinancing.
  • Vehicle Title Transfer – Another consideration is the transfer of the vehicle title. In most states, the title must be transferred from the old lender to the new one. This process can take two to three months, so it may not be possible even if you want to refinance quickly.
  • Refinancing and Your Credit Score – Finally, keep in mind that refinancing can temporarily ding your credit score. So if you’ve recently refinanced, you may not have the best credit and not qualify for great loan options again. That said, if you’ve been making your payments on time and have improved your credit since refinancing, you may get a better loan this time.

Does refinancing a car mean starting over?

Rather than considering it as starting over, it’s more helpful to consider it a fresh start. When you refinance, you’re taking out a new loan and using the same car as collateral. The new loan may have different terms from the original loan, such as a lower interest rate, different monthly payments, or a different loan length.

Can I refinance if I have a low credit score?

While it’s possible to refinance with a low credit, it may be challenging to get approved for a new loan. This is because lenders will consider your credit score and history when deciding whether or not to approve your loan. In addition, if your credit is low, you may not qualify for the best loan terms, such as a low-interest rate.

A generic credit score sheet with a pencil across the document and a pair of glasses sitting at the top

One way to deal with refinancing with low credit is to get a cosigner for your loan. This is someone who agrees to sign the loan with you and is responsible for the payments if you can’t make them. Having a cosigner will help you get approved for a loan and may even help you qualify for better terms. However, be sure that this is someone who understands that they’re taking on a big responsibility and is willing and able to make the payments if you can’t.

Is it wise to refinance multiple times?

If refinancing means saving money or making your financial situation more comfortable, then it is smart to do it multiple times. However, if refinancing will only extend the life of your loan without providing any real benefit, you may want to avoid it. Also, consider the refinancing costs, such as application and title transfer fees, which can add up if you do it multiple times.

Does refinancing a car hurt your credit?

Refinancing your car will not permanently hurt your credit. Instead, it temporarily lowers your credit score because it triggers a hard inquiry on your credit report. However, your score will rebound after a few months if you make all your payments on time. For this reason, many people find that refinancing actually helps improve their credit score.

Does refinancing give you more money?

This depends on your refinancing terms, goals, and whether you’re searching for “more money” immediately, every month, or throughout your loan. 

  • More Money Monthly – Lowering your monthly payments increases your immediate disposable income. But while it may seem like you have more money, you’re likely extending the life of your loan and paying more interest in the long run. That means that overall, you come out with less money long-term. 
  • More Money Saved – If you’re looking to save money over the long haul, a more aggressive refinancing strategy with a shorter term and/or higher monthly payments may do it. For example, if you refinance from a 60-month loan to a 48-month loan, you may pay more each month which reduces your disposable income. However, you’ll save on interest and be debt-free sooner.

Can you refinance a car loan with the same bank?

Technically, this is possible. However, the same bank, credit union, or other lenders may not offer you the best terms. Therefore, comparing rates and terms from multiple lenders is always a good idea before deciding on a loan.

When should you not refinance a car loan?

While there are many advantages and incentives to refinancing a car loan, there are also some situations where it may not be the best idea or you simply can’t due to rules and regulations with lenders.

  • Car Over 10 Years Old – Cars over 10 years old are generally refused by most lenders for refinancing. They typically only refinance loans for newer cars because they view them as having a greater resale value. As such, they see them as a less risky investment and are more likely to approve a loan for one of these cars. If your car is an older model, you might get approved for a refinance loan, but it will likely come with a higher interest rate. Alternatives to refinancing could entail taking out a personal loan or using the car as a trade-in when purchasing a new vehicle.
  • You’re Upside Down on Your Loan – If you owe more on your car loan than your car is currently worth, you may have difficulty refinancing your loan. This is because lenders typically only refinance loans for borrowers with equity in their vehicle — meaning the car’s value is greater than the remaining balance on the loan. If you’re upside down on your loan, you may be able to roll the negative equity into a new loan, but this will likely extend the length of your loan and increase your monthly payments. It also puts you at risk of once again being upside down on your loan in the future.
  • Your Loan Has Stiff Repayment Penalties – Before refinancing your car loan, check the terms of your current loan agreement. Some lenders charge penalties — known as prepayment penalties — for borrowers who pay off their loans early. These penalties can add substantial amounts to the cost of refinancing your loan, so it’s essential to be aware of them before making a decision.
  • Refinancing Is Not Worth It – There are certain periods when it’s not financially advantageous to refinance your car loan. For example, if there are less than 12 months on your loan, refinancing costs may outweigh savings. Similarly, if interest rates have increased since you initially took out your loan, you may be unable to secure a lower rate. In these cases, it’s usually best to stick with your current loan.
  • You Have a Low Credit Score – Borrowers with a lower credit score may have difficulty qualifying for auto refinancing. Lenders typically only approve borrowers with high or excellent credit for refinancing products. If you have a low credit score, you may still be able to get approved for a loan, but it will surely come with a higher interest rate. This often negates the savings from refinancing in the first place, so it’s usually not worth it.

How do I know if refinancing is right for me?

The best way to decide if refinancing is right for you is to compare the terms of your current loan with the terms of potential new loans. Look at things like the interest rate, monthly payments, and length of the loan. It might be worth refinancing if you can get a lower interest rate or better terms. Consider all the costs involved in getting a new loan, such as application and title transfer fees. You don’t want to pay more in the long run just because you refinanced. Using a refinance car loan calculator is an excellent place to start your research.

The Bottom Line on Refinancing More Than Once

If you’re considering refinancing your car, there’s no limit to how many times you can do it. However, keep in mind the lender’s policy on refinancing, the administrative process of title transfer, and the impact on your credit score. Refinancing can be a great way to save money on interest or change the terms of your loan, but make sure to consider all the factors before making a decision.

Can You Trade in a Financed Car?

If you’re looking to trade in your car, you may wonder if you can do so if you still have a loan outstanding on the vehicle. The good news is that, in most situations, you can trade in a financed car. Here’s how it works.

When you go to trade in your car, the dealership will pay off the remaining balance on your loan. They will then apply your equity in the car towards purchasing your new vehicle. If you owe more on the loan than the car is worth, you may still be able to trade it in, but you may have to pay the difference out-of-pocket or roll the negative equity into your new loan.

When trading in a car you still owe money on, it’s essential to research and understand the implications. In addition, weighing all your options before committing to either route is important, as this will help ensure you get the most value out of your vehicle

Let’s take a closer look at the different considerations involved in trading in a financed car and what you can do to ensure you get the best deal.

Table of Contents:

What is a trade-in?

A trade-in is when you use your current vehicle as collateral toward the purchase of a new car. You essentially hand over the keys to your old car to the dealer, who then uses that car to lower the price of the new car you’re buying. In this process, your previous loan is paid off, and any equity you may have in your car is applied toward the price of the new vehicle.

Sometimes, trading-in a car can give you less money than what you would get if you sold the car outright — so if getting top dollar for your old car is a priority, trading it in might not be the first option to explore. However, in order to be sure, you need to take a few steps.

Person holding a mobile phone in hand and scrolling on the screen. Information is about finding out what your car is worth which is in the text below

Find out what your car is worth

Before trading in your car, it’s essential to know precisely how much it’s worth. The trade-in value is not the same as the retail value, so don’t walk in thinking that’s what the dealership will offer for your car. The trade-in value is generally closer to the wholesale price the dealer will give you for your vehicle. However, the retail value is higher and would be what you could expect to get if you sold your car yourself.

That said, knowing the retail value of your vehicle is still important because it will give you a better understanding of the equity you have in your car.

There are a few different ways to determine your car’s trade-in value. One is to use an online tool like Edmunds’ Trade-In Marketplace or Kelley Blue Book’s Trade-In Calculator. You can also check “black book” values at sites like NADAguides

Get the most for your trade-in

Once you know the trade-in value of your car, it’s time to start thinking about how to get the most for it. Remember — the dealer’s goal is to make money on the sale of both the new car and the trade-in, so they’re not going to give you top dollar for your current vehicle. However, that doesn’t mean you can’t negotiate a reasonable price for your trade-in. Here are a few tips:

Hand flipping through a roll of 100 dollar bills. The text is informing readers how to get the most out of a trade in and is the same as the text in the story below
  • Research recent sales of similar cars in your area to see what they sold for. This will give you a good idea of what dealers currently pay for cars like yours. 
  • Get multiple appraisals from different dealerships. This way, you can compare offers and see who will pay the most for your car. 
  • Be prepared to walk away from any offer that isn’t satisfactory. After all, if they’re not willing to give you a fair price for your trade-in, there’s no reason why you should buy a car from them anyway. 

Additional recommendations for earning top trade-in dollar on your car include:

  • Repair any minor damage to the vehicle, including dings, scrapes, and scratches.
  • Have the car washed and detailed so it looks its best.
  • Provide any relevant service records to prove that the car has been well-maintained.
  • Remove any aftermarket accessories or modifications if possible.

Know your remaining loan balance

The next step is determining how much you owe on your current loan. If you’re unsure of your remaining balance, contact your lender and request a payoff quote. This will tell you exactly how much money needs to be paid off for you to trade in or sell the car. 

It’s important to understand where you stand on principal vs. interest payments on your loan. If you haven’t paid much of the principal, you’re mostly paying off interest charges, which will impact how much equity you have in your car. 

Calculate the equity on your vehicle

Now that you know what your car is worth and how much you still owe, you can calculate the amount of equity you have in the car. To do this, subtract the remaining loan balance from the car’s trade-in value. If you have negative equity in the car, you still owe more than what it’s worth. 

  • Trading in a financed car with positive equity – This is a good position to be in. It means you have some equity in the car, which you can use toward purchasing a new vehicle. In this situation, your new auto loan will be lower since it will only need to cover the difference between your car’s trade-in value and the amount of your new car purchase. 
  • Trading in a financed car with negative equity – This is not ideal, but it’s still possible. In this case, your new loan may need to include some of the remaining balance on the old loan to cover the entire purchase price of the new car. Be aware that this can lead to higher monthly payments and more interest charges, so it’s important to make sure you understand all the terms before signing anything. 
Photo of hands placing a for sale sign on the windshield of a car that is parked
For sale sign on windshield of car.

Should I trade in my financed car or sell it privately?

When you’re looking to upgrade to a new car, you may wonder if it’s better to sell your old car privately or trade it in. While both options have pros and cons, the decision ultimately comes down to what makes the most financial sense for you. Using the information you’ve gathered throughout this guide, you can make an informed decision and get the best value for your vehicle. 

If you decide that trading in your financed car is the right choice, it’s important to be prepared and do your homework. By researching recent sales prices, getting multiple appraisals, and understanding how much is owed on your car loan, you can maximize the value of your car and get the best deal possible. But if you’re still unsure, here are some considerations to help you decide.

When to trade in your car

There are a few scenarios where trading in your car makes more sense than selling it outright. For instance, if you’re upside down on your loan (meaning you owe more on the loan than the car is currently worth), trading in your vehicle can help you avoid having to come up with extra cash at closing. Additionally, trading in your car can help simplify the car-buying process by allowing you to take care of everything at one dealership. And lastly, if you’re interested in taking advantage of special offers or promotions, trading in your car can be a great way to help you save money on your next purchase. 

When to sell your car privately

On the flip side, there are a few scenarios where selling your car outright makes more sense than trading it in. For starters, if your car is nearly paid off and has no major mechanical issues, you’ll likely get more money by selling it yourself than by trading it in. Additionally, if you’re not planning on buying another vehicle right away or don’t have a specific model in mind, there’s no rush to trade in your old car. You can always do it later down the road. Finally, if time isn’t an issue and you don’t mind putting in a little extra effort, listing your car online or through classified ads will give you more control over the sales process and could net you a higher return than trading it in to a dealership.

Remember that privately selling a financed car comes with its own challenges, so it pays to do your research before committing to either option. The biggest one concerns the title. In most cases, you’ll need to have the title in hand before selling your car privately, so you’ll first have to pay off the remaining loan balance. This is a challenge for many people who don’t have access to personal loans or lines of credit from a bank or other lenders. But if you have the funds available and don’t mind taking on the extra effort, selling your car privately can be a great way to maximize its value. 

Photo of two people holding hands and driving down the road in a convertible. Text on the image is about when someone should trade in a car but is listed in the story below

Is there a good time to trade in a car?

If you’re currently driving a car you financed, you may wonder if it’s the right time to start looking for a new one. After all, every car has a limited lifespan, and sooner or later, you’ll need to replace it. So the question is — when is the best time to do that?

There’s no easy answer to that question since there are a lot of factors to consider.

When your car is getting old

One of the most apparent times it makes sense to trade in your car is when it’s getting old. All cars have a limited lifespan. Eventually, they’ll reach a point where they’re no longer desirable, and dealerships will not offer you much, if anything, for them. Cars over 10 years old and with more than 100,000 miles are unlikely to be worth much on the used car market, so if trading it in is in your future and you’re halfway to either of those benchmarks, it may be wise to start researching and shopping for a new car sooner rather than later.

When interest rates are low

If you’re considering financing a new car, timing is everything. Interest rates on auto loans fluctuate just like any other type of loan, so getting a low rate can save you thousands of dollars in the long run. So keep an eye on interest rates and time your purchase accordingly. It’s also a good time for auto refinancing if you’d rather keep the car you have but are looking for a lower rate. To see if this is a better option, use our refinance car loan calculator

When there’s high demand for used cars

Another thing to consider is the demand for used cars. Believe it or not, there are specific periods when used cars are in higher demand than others. For example, when supply chain issues and wait times for new vehicles stretch out, there is often increased demand for used cars. Knowing when the market is hot can help you get a better price for your car if you choose to trade it in. 

Final Thoughts on Trading in a Financed Car

So, can you trade in a financed car? Yes, you can, but it’s essential to research and understand the implications of trading in a vehicle that you still owe money on. It pays to weigh all your options before committing to either route, as this will help ensure that you get the most value out of your vehicle. 

Is Refinancing a Car Loan After Bankruptcy Possible? Everything You Need to Know


It’s a scary word describing someone in an unenviable financial position. But it’s not exactly a rarity. In 2021, there were 413,616 bankruptcy claims.

The word “bankrupt” stems from the Italian term “banca rotta,” which translates to “broken bench.” In 16th century Italy, money dealers worked from benches and tables. If funds ran dry and they went out of business, their benches would be broken in half. Fortunately, if you file for bankruptcy, no one’s going to come smash your furniture. But there could be some repercussions.  

One immediate drawback is the extensive damage bankruptcy can do to your credit. For auto loan borrowers, that means you could have a hard time qualifying if you want to refinance your car loan— but it’s not impossible.

Whether you’re on the fence about filing or you’re in the middle of court proceedings, let’s explore bankruptcy and how to approach refinancing afterward.

What Is Bankruptcy?

Whether you’re on the fence about filing or you’re in the middle of court proceedings, let’s explore bankruptcy and how to approach refinancing afterward.

Bankruptcy can help individuals or businesses climb out of major financial holes. When borrowers can’t repay their lenders, they have the option of filing for bankruptcy in a federal court. This legal process could result in the discharge of all or a portion of your debts, essentially setting you up for a fresh start.

There are six types or “chapters” of bankruptcy:

  • Chapter 7, also known as “liquidation,” results in the sale of nonexempt property in order to repay creditors.
  • Chapter 9 is for the reorganization of municipalities, which is very rarely used (fewer than 500 times since the 1930s) and irrelevant to drivers. 
  • Chapter 11 is often referred to as “reorganization” bankruptcy. Although individuals can file for chapter 11, this is the most complex and expensive form of bankruptcy, so it’s more commonly used by businesses.
  • Chapter 12 is reserved for family farmers and fishermen with regular income.
  • Chapter 13, which is also called “a wage earner’s plan,” allows for individuals with regular incomes to set up debt repayment plans.
  • Chapter 15 is the most recent addition to the U.S. bankruptcy code. This chapter was designed for cross-border insolvency cases, so it’s rare and likely irrelevant for the typical driver.

We’ll focus on the two most applicable bankruptcy chapters for auto loan borrowers: chapter 7 and chapter 13.

An Overview of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as “liquidation.” Despite the ominous title, the goal of bankruptcy law is to protect borrowers from crippling debt and help them get back on their feet.

Once you file for chapter 7, the government will assign a trustee to your case. They’re responsible for liquidating your nonexempt assets — such as second vehicles, vacation homes, and collectibles — and repaying your creditors with the proceeds.

On the other hand, some of your property is considered exempt under federal and state laws. These definitions vary, and borrowers may have the right to leverage their state’s definition of exempt property instead of the federal definition. For instance, the U.S. Bankruptcy Code allows a filer to exempt up to $2,400 of equity interest in one vehicle, while the state of Idaho bumps that limit up to $10,000.

However, bankruptcy does not remove liens on property. So, if you have a secured loan (like a car loan), the lender will still have a security interest in the underlying asset after bankruptcy, meaning they can repossess the car if you stop making payments.

Note that chapter 7 eligibility isn’t guaranteed — you have to qualify.

Can you refinance a car during chapter 7 bankruptcy?

Generally speaking, you’ll need the court’s approval to enter a new loan agreement during bankruptcy. It’s probably not worth applying for a refinance loan during legal proceedings though.

For starters, chapter 7 bankruptcy typically lasts between three and six months. Waiting could help you avoid going through the court system. Moreover, once you file for bankruptcy, it’s public record and accessible by the major credit bureaus (e.g., Experian, TransUnion, Equifax). In all likelihood, making it difficult to find a lender. 

An Overview of Chapter 13 Bankruptcy?

Chapter 13 can be a less drastic option compared to chapter 7, especially if you want to avoid liquidation. 

This type of bankruptcy enables you to set up a repayment plan for your debts, potentially at a discount. Plans are typically three to five years and effectively consolidate your payments — everything flows to the trustee, who then distributes the remitted funds to your creditors.

You may even be able to reduce your secured debts to the values of the underlying assets, a process known as a cramdown.

For instance, if your car is worth $10,000 but your loan amount is $15,000, you could cram down your obligation to $10,000 through your repayment plan. The remaining $5,000 would be lumped into the rest of your unsecured debt (like credit cards), of which the court may only mandate you to repay a portion back.

In either case, before you decide to pursue bankruptcy, it’s worth seeking legal counsel as bankruptcy cases are quite complex.

Can you refinance a car during chapter 13 bankruptcy?

Considering chapter 13 proceedings take longer, you might be wondering if you can refinance during bankruptcy.

The short answer is yes. But you face the same hurdles as before — the court has to approve your refinance loan. Your initial payment plan was approved according to your income and expenses when you filed. By refinancing, the court would likely reassess your financial situation, which could influence your monthly payments.

And, again, you still have to qualify, which is challenging with low credit.

Building blocks that spell out bankruptcy

How Bankruptcy Affects Your Ability to Refinance Your Car Loan

Contrary to what you might think, it’s possible to refinance your car loan after bankruptcy. That said, it’s an uphill climb and don’t be surprised if it takes months (or even years) to repair your creditworthiness.

Let’s explore the various ways a bankruptcy could affect your ability to refinance.

Credit score

Once debts are discharged through bankruptcy, they don’t just vanish. Chapter 7 bankruptcies stay on credit reports for ten years, while chapter 13 bankruptcies stay on credit reports for seven years. As you can imagine, bankruptcies tend to have a negative impact on a credit score.

The severity of the point drop depends on what your score was before you filed. If you have an above average score, expect your scores to plunge 200 to 240 points. If you have an average score like 680, your score could slip between 130 and 150 points. Regardless, loan underwriting programs will likely flag you as a risky borrower.


The very nature of lending money is risky — there’s always a chance that the borrower doesn’t repay. When a borrower has filed for bankruptcy, it demonstrates an inability to manage debt. That’s not very enticing to the typical lender. 

When you have a lower credit score or a negative credit history, you may not qualify for refinancing, at least through traditional financial institutions like banks or credit unions.

After filing for bankruptcy, it can be difficult to get the best auto loan rates. Lenders typically reserve their best rates for borrowers with excellent credit. However, you may qualify for a subprime loan with higher interest rates and a steeper monthly car payment. Granted that’s far from ideal, a refinance could still help you secure a better loan rate.

According to data from our sister company, RateGenius, 30% of borrowers with a bankruptcy on their record managed to successfully refinance — and they reduced their rate by 5% on average.

Regardless, it’s prudent to shop around and compare loan offers to potentially get a lower interest rate. You can use a marketplace like AUTOPAY to streamline this process.

Loan Fees

Subprime loans not only have high interest rates but also worse loan terms, such as documentation fees, prepayment penalties, and higher late fees. Keep an eye out for these terms when comparing loans, and tinker with a refinance calculator to ensure a new loan is worth it.

Copies of bankruptcy law

How To Improve Your Chances of Refinancing a Car After Bankruptcy

We’ll give it to you straight — you’ll have a hard time refinancing a car after bankruptcy. And considering it’ll remain on your credit report for 7 to 10 years, you might have trouble getting approved for any sort of loan for quite a while.

But there are steps you can take to improve your credit and chances of qualifying in the meantime.

Bolster your debt-to-income ratio

Your credit scores are an important factor, but they aren’t the only aspect of your financial profile. While your credit quantifies your reliability as a borrower, it doesn’t include your income.

So, in addition to your scores, lenders also evaluate your debt-to-income ratio (DTI). This metric compares your monthly obligations to your gross monthly earnings — essentially measuring the percentage of your income that’s already tied up in other financial commitments.

Generally speaking, it’s recommended to maintain a DTI below 50%. But the lower, the better.

According to data from our sister company, RateGenius, 90% of borrowers who were approved for refinancing had a DTI below 48% from 2015 to 2019. While it’s easier said than done, if you can swing a higher paying job or work part-time for a while, you can improve your DTI and potentially convince a lender to overlook the bankruptcy. 

Pay off a chunk of your existing car loan

Auto loans are considered secured loans. In other words, the vehicle serves as collateral, which means the lender could repossess it in the event the borrower stops making payments. The lender would then try to recover its investment by selling the vehicle. 

Why is this important? Well, the lower your loan balance relative to your car’s value (known as your loan-to-value ratio), the easier it is for a lender to make itself whole if they ever have to sell your car. This could help mitigate a lender’s concerns about your bankruptcy history and potential risk of missing payments.

Rebuild your credit

Although bankruptcy helps prevent you from suffocating under a pile of debt, it could put a stain on your credit, making it harder to take out loans and lines of credit in the future. That said, your scores aren’t locked in forever.

To rebuild credit, you need access to credit. Credit-builder loans and secured lines of credit can help. These products are easier to qualify for and help borrowers make on-time payments and establish accounts in good standing.

With good credit repair habits, your credit scores can gradually recover over time.

Consider a cosigner

Applying for a refinance loan with a cosigner can help you qualify. A cosigner promises to take responsibility for the loan if the primary borrower ever stops making payments. Ideally, this is a person who is not only trustworthy (like a parent or spouse) but also has a strong financial profile.

Don’t Rush, Understand Your Options

Bankruptcy is a viable solution for many financially distressed borrowers, but it isn’t the only option. It would be wise to explore alternative approaches to ensure you make the best decision. That may include speaking directly with loan providers to see if they’re willing to work with you, selling unnecessary assets, and asking friends or family for assistance.

You may even realize that you don’t need to go to court to rectify your situation, which can help preserve your credit and increase your chances of taking out new loans — including an auto refinance loan.

How to Get a Car Loan with No Credit

Quick Answer:

Getting a car loan when you have no credit can be difficult, but it is possible. We'll show you how to get a car loan with no credit so you can get behind the wheel and on the road to building your credit. It starts by understanding what credit is and then working through the strategies to get a car loan with no credit. 

Table of Contents: 

Understanding Credit:

For many, “credit” probably conjures up a reasonably nebulous mental image. But, of course, you may know that it has something to do with borrowing money and paying it back over time. Still, beyond that, the details are probably pretty fuzzy. Well, consider this your crash course.

What is credit?

In a nutshell, credit is simply the ability to borrow money. When you have good credit, lenders are more likely to loan you money – and they’ll probably give you more favorable terms, like lower interest rates. 

What is no credit?

Having no credit is actually not as bad as it sounds. If you have no credit, you don’t have any active accounts that are being reported to the credit bureaus. This usually happens when you’re young and haven’t taken out any loans or opened any lines of credit yet. It’s also common among immigrants who may have established financial history in their home countries but not in the United States. So having no credit is not necessarily a bad thing. In fact, some lenders may actually see it as a positive sign since you don’t have any negative marks on your record.  

Two people looking at a computer screen on a website for no credit
Get Pre-Qualified for a New Auto Loan

What is inactive credit?

Inactive credit is similar to having no credit in that it means you don’t have any active accounts being reported to the credit bureaus. However, the difference is that inactive credit generally refers to people who have had credit accounts in the past but are no longer using them. This could be because they paid off their debts and closed their accounts or because they’ve become “zombie” accounts that still exist but aren’t being used. Inactive credit can be seen as both good and bad by lenders. On the one hand, it shows that you can manage debt responsibly. Still, on the other hand, it can make lenders worry that you’re not actively using your lines of credit.  

What is low credit?

Having low credit is precisely what you think it is. It means you have active accounts with negative marks being reported to the credit bureaus. This could be because you’ve made late payments, exceeded your credit limit, or defaulted on a loan. Low or bad credit can make it challenging to get approved for new loans or lines of credit. If you get approved, you’ll almost certainly pay higher interest rates than people with good credit scores. That’s why it’s so important to stay on top of your payments and keep your debt under control. Missing just a few payments can tank your score for years to come.  

Are no credit and low credit the same thing?

Absolutely not. As we’ve explained, having no credit means you don’t have any active accounts being reported to the credit bureaus. That’s not necessarily a bad thing. On the other hand, low or bad credit means you do have active accounts with negative marks being reported. This will make it harder for you to get approved for new loans and lines of credit — and if you are approved, you’ll probably pay higher interest rates. 

Inforgraphic explaining the credit scores that are considered high credit

What is a good credit score?

A good credit score is any score that falls in the “good” or “excellent” range on the major credit scoring scale. For FICO scores, that’s a score of 670 or above. For VantageScores, it’s a score of 700 or above. Generally speaking, having a good credit score means you’re a low-risk borrower, which means you’re more likely to get approved for loans and lines of credit. In addition, you’ll probably get more favorable terms, like lower interest rates. So if you currently have no credit, this is what you should aim for.  

Getting a Car Loan with No Credit

You’ve finally saved up enough money for a down payment on a car, but there’s one more obstacle in your way: you have no credit history. But don’t worry — it is possible to get a car loan with no credit. Here are a few things you’ll need to do. 

Collect All the Proper Documents

One of the first things any lender will want to see is proof of your employment history and current pay stubs. They’ll also want to see previous addresses and how long you lived there. If you have any bills that you’re regularly paying, such as rent or utilities, those can also help build trust with the lender. Finally, they’ll need to see your driver’s license. Collecting all of these items ahead of time will help speed up the loan process once you find a lender. 

Woman standing at a table looking through paperwork

The lender will want to see all of this information to verify that you are who you say you are and that you’re capable of making regular payments on the loan. For example, your employment history and current pay stubs show you have a steady income. In addition, an address history indicates stability, and you’re not at a high risk of defaulting on the loan.  

Find a Cosigner

You may need to find a cosigner for your loan if you don’t have any credit history. A cosigner is someone who agrees to take on the responsibility of the loan if you cannot make the payments. This is a significant risk for the person, so make sure you can make the payments before asking someone to cosign for you. If you default, they’ll be stuck with the bill, and their credit will also suffer. 

Speaking of credit scores, it is also important that your cosigner has good or excellent credit. Since you have no credit history, the lender will heavily rely on your cosigner’s credit score to decide the interest rate and whether or not you qualify for the loan. On the other hand, if your cosigner has low or bad credit, you may still be eligible for a loan, but it will have a higher interest rate which may defeat the purpose.  

Inforgraphic on what to do it you have zero credit
Now is The Time to Refinance Your Car Loan

Save for a Bigger Down Payment

A down payment is the money you put down when you get the loan. The bigger the down payment, the less money you’ll need to borrow, and the lower your monthly payments will be. Lenders often like to see a down payment of 10 percent or more, but if you can swing 20 percent or more, that’s even better. 

A more significant down payment also shows the lender that you’re serious about making regular payments on the loan since you have more skin in the game. This can help offset some of the risk associated with lending to someone with no credit history. 

Be Prepared to Pay a Higher Interest Rate

Unfortunately, you will likely be charged a higher interest rate on your loan if you don’t have any credit history. This is because you’re seen as a higher risk to the lender, and they want to be rewarded for that risk. 

If you have a cosigner with excellent credit, their good credit can help offset some of the risk, which may result in a lower interest rate. But if you don’t have a cosigner or your cosigner has bad credit, you’ll likely be stuck with a higher interest rate. 

Build Credit and Wait

If you cannot get a car loan with no credit right away, don’t worry. You can take some steps to build your credit to get a loan in the future. This is more of a long-term strategy, but it will help you get better terms when you’re ready to apply for a loan. There are easy and sure ways to build your credit score, so researching and finding what works best for your situation is a good place to start. General ways people begin to develop a good credit score include: 

Infographic on how to build credit
  • Opening a secured credit card – A secured credit card involves a deposit, which becomes your credit limit. For example, if you put down a $500 deposit, your credit limit — and maximum balance — will be $500. This is an excellent way to build credit because it shows that you can manage a credit limit and make regular, on-time payments. 
  • Becoming an authorized user – You can also become an authorized user on someone else’s credit card account. This means you’ll have your own card that you can use, but the account will be in someone else’s name. As long as the account is in good standing, this will help build your credit score. 
  • Applying for a credit-builder loan – A credit-builder loan is where the money you borrow is deposited into a savings account. Once you make all your payments on time, you’ll have access to the money in the account, plus any interest earned. This is a good way to develop a credit history because it shows that you can make regular, on-time loan payments. 

Beware of Financing Through the Car Dealership

Many car dealerships offer in-house financing, which may seem convenient if you don’t have any credit. In addition, they often claim they can finance anyone, no matter their credit score. But beware — these loans frequently come with high-interest rates, and you could pay more for your car than it’s worth. 

Why do they do this? In truth, dealerships make very little profit from the vehicle sale. Instead, their profit comes from other products they sell, such as extended warranties, gap insurance, and — you guessed it — financing. So while they may claim to be helping by financing you, they’re really just trying to make more money off you in the long run. 

Woman looking frustrated and looking at bills while sitting at a table with her head in her hand

If you decide to finance through the dealership, shop around at different dealerships for the best interest rate. And if you can get pre-approved for a loan from a bank, credit union, or another third-party lender before going to the dealership, that’s even better. This way, you’ll know exactly how much car you can afford and what interest rate you’ll be paying. Otherwise, you’ll be looking at a much higher interest rate and could end up in a loan you can’t afford. And that will leave you looking for tips on how to get out of a bad car loan

Bottom Line

Getting a car loan with no credit is possible, but it may not be easy. You’ll likely need a cosigner or a sizable down payment, and you can expect to pay a high-interest rate. If you cannot get a loan right away, take some steps to build your credit to get better terms in the future. Whatever you do, beware of financing through the dealership. They often try to make more money off you by offering loans with high-interest rates. 

Used vs. New Car: Which One Is Right for You?

Purchasing a car is a big decision. It’s not only a major purchase but also a long-term commitment. Whether shopping for a new or used car, both options have pros and cons. 

So, which one is right for you? From considerations like auto financing to vehicle history reports, we’ll help you make the best decision for your needs. Here’s a look at the pros and cons of buying used versus new cars and what you need to consider before deciding.

Pros of Buying a Used Car

There are many reasons why buying a used car can be a good idea. 

  • Upfront savings – You can often get a used car for significantly less money than a new one. This is especially true if you buy from a private seller or an auction. Dealerships typically charge more for used cars. That’s because you might have more negotiating power when purchasing a used car than a new one. This varies depending on the dealership or seller, but it’s generally easier to haggle over price on a used car. 
  • Less depreciation – A used car will usually have already taken its biggest depreciation hit. New cars lose significant value as soon as they’re driven off the lot. This better insulates you from negative equity situations if you need to sell the car. 
  • Monthly savings – You can expect lower monthly car payments and insurance rates with a used car. And often, you can save even more down the line with auto refinancing if interest rates drop.
  • More personality – Some people prefer driving a used car. There’s something about knowing that your car has lived a little that can make it feel like more of a companion than a brand-new machine. 

Now let’s take a look at the cons of buying a used car.

Cons of Buying a Used Car

There are a few potential drawbacks to consider before buying a used car. 

  • Maintenance history – It’s impossible to know the vehicle’s complete history. Even if you buy a used car from a reputable dealer, it’s difficult to know how the previous owner(s) treated it. If previous owners haven’t maintained it properly, unseen damage might lead to repairs in the future. To assist you in identifying any potential concerns, get a pre-purchase inspection from a professional mechanic.
Man pointing out a blemish on a used car
  • Potential problems – In addition to maintenance issues, there could be other car problems that you’re unaware of. For example, the car might have been in an accident that wasn’t reported, or there could be hidden damage from a previous owner. Again, a pre-purchase inspection can help you identify any potential problems. 
  • No warranty – Used cars usually don’t come with a manufacturer’s warranty. If something goes wrong, you’ll be responsible for the repairs. 
  • Less choice – When you buy a new car, you can choose the model, color and options you want. When you buy used, you’re limited to what’s available on the market. Also, used cars generally have fewer features than new cars and might not have the latest safety technology. 

Now let’s examine the pros and cons of buying a new car.

Pros of Buying a New Car

There are some significant advantages to buying a new car. 

  • Up-to-date features – New cars always have the latest technology, safety features and creature comforts. If you’re looking for the latest and greatest, a new car is the way to go. 
  • Warranty and lower maintenance costs – New cars usually come with some type of warranty that covers maintenance and repairs for a certain period. This can help decrease costs if something goes wrong with the car. 
  • Financing options – You might be able to get a better financing deal on a new car than a used one. This is often true if you’re buying from a dealership. It might offer promotional rates or other incentives that make financing a new car more attractive.  In addition, you can increase these savings later if you refinance when rates drop. You can use a refinance car loan calculator to see how much you can save.
  • New car smell – There’s something about that new car smell that some people can’t resist. It signifies a fresh start and a clean slate. So if you’re looking for that new car experience, getting that new car smell might be essential. 

Now that we’ve taken a look at the pros, let’s discuss the cons of buying a new car.

Smiling, happy couple accepting keys to their new car

Cons of Buying a New Car

There are also some potential drawbacks to consider before buying a new car. 

  • Higher cost – The cost is the biggest downside to buying a new car. They’re simply more expensive than used cars. This can be due to supply chain issues, production costs and marketing expenses. 
  • Higher insurance rates – New cars also tend to have higher insurance rates than used cars. This is because they’re more expensive to replace if stolen or totaled in an accident. 
  • Availability – Thanks to supply chain issues and chip shortages, specific models might have limited availability. This makes it challenging to find the exact car you want, and you might find yourself waiting for up to a year until it’s available. 
  • They don’t stay new – This might seem like an obvious point, but it’s worth mentioning. No matter how well you take care of your new car, it will never be brand new again. It will eventually show signs of wear and tear, and you’ll have to deal with the inevitable repairs and maintenance that come with owning a vehicle. 

The list seems to be pretty evenly split.

Which Is Right for You?

Ultimately, the decision comes down to your needs and preferences. A new car is probably the way to go if you’re looking for the latest features and technology. However, if you’re on a budget or prefer a used car’s personality, you might want to consider going that route. Whatever you decide, be sure to do your research and shop around to get the best deal. 

Why Are Interest Rates Higher on Used Cars? Your Questions Answered

If affordability drives your search for a new car, choosing a used vehicle is one way to save. One thing to keep in mind, however, is that used vehicles can come with some hidden costs, particularly if you choose to finance your vehicle. In most cases, interest rates on used car loans are higher than those offered on new car purchases. 

Why Are Interest Rates Higher?

Below are some of the reasons why lenders charge more to finance a used vehicle:

1. Manufacturer incentives

Manufacturers are in the business of selling new cars, so naturally they want to offer strong incentives to customers for buying one. In addition, the dealerships themselves often have auto financing programs, so it makes sense to offer attractive rates on new vehicles. 

If it does seem like the dealerships in your area are offering much better terms on new vehicle loans, take note of their rates but then check out used car lots as well. If you have good credit and sufficient income, you might still be able to get an excellent rate on a pre-owned vehicle.

2. Car value

Car lenders are at an advantage over other creditors, such as credit card companies. This is because the automobile has value which serves as collateral to secure the loan. If a borrower defaults on loan payments, the lender can repossess the car and sell it to try to recoup any losses. 

There is, however, a downside to any secured loan. The value of the collateral itself might decrease significantly after a loan is approved. In such a case, the lender could suffer significant losses if it is unable to sell the collateral for anything close to its estimated value at the time that the loan was granted.

When it comes to auto loans, there are a few factors that can present a significant risk to the value of the vehicle. First, used car appraisals can be difficult to perform, making it hard to establish a car’s value. The second issue is that cars are subject to damage caused by poor road or weather conditions, careless driving or accidents. 

The sale of a repossessed vehicle that has been damaged or that has mechanical problems might not cover the balance on a defaulted car loan. If this is the case, the lender might have to go to court and seek a monetary judgment against the borrower. 

All of this takes time, money and, if the borrower is bankrupt, the lender might never recoup the balance or court costs. The higher interest rates for used cars help to offset these risks. 

3. Credit scoring

Loan terms are based, in part, on the likelihood of repayment and the risk of default. Lenders use credit scores to assess these risks and set interest rates (and fees) accordingly. Used car buyers could have lower credit scores and, as a result, might be offered loans at higher rates.

What Can I Do to Lower My Interest Rate?

Should the possibility of being offered a higher interest rate deter you from purchasing a used car? Not necessarily. Buying a used car might be the least expensive way to get the car that meets your needs. 

However, it is important to understand your costs and risks before making a decision. There are also several things that you can do to increase your chances of getting an attractive interest rate on your car loan:

  1. Run the numbers: If you are considering a used vehicle because you think it will be cheaper than buying a new car, use a refinance car loan calculator to calculate your actual costs. You might find that, over time, it is less expensive to purchase a new car.
  1. Clean up your credit: Many people with no credit, or less-than-perfect credit, are able to secure financing for a car purchase. However, the best terms are usually offered with good credit scores. 

If you have the time to do so, order your credit reports, correct any errors and start paying down debt. Your credit score might increase even after just a few months of work, potentially saving you thousands of dollars over your loan term.

  1. Save up a down payment: A large down payment builds collateral, something that is attractive to lenders because they have to worry less about your car’s value if you default on your payments. Making a substantial down payment also reduces the balance of your loan, which means that you pay less interest over time.

Once you’ve done all of the above, you’re in the best position to apply for financing (or refinancing). 

Final Thoughts

Buying a car is a big commitment. If you are in the market for a used car, take your time when selecting a vehicle and securing financing. Remember also that loan terms address interest rates, the length of your repayment period and, in some cases, extra fees. Review your costs carefully before taking out a car loan. 

If you’ve already financed your car but aren’t happy with your current loan terms or interest rate, you can always apply for refinancing.

5 Dealership Red Flags and How to Avoid Them

Buying a new car is stressful. It’s a major purchase, costing thousands of dollars – which doesn’t include having to pay for repairs if the car develops mechanical problems. There’s also the concern about purchasing a car that is simply unsafe to drive. 

Your best protection against overpaying for a vehicle or purchasing a “lemon” is selecting an ethical car dealership. Learning to identify red flags early in your interactions can help you walk away from a bad deal. 

Shopping for a Dealership

Wise car buyers shop for a dealership before shopping for a car. Working with the right dealership will save you stress, money and time – particularly when it comes to auto loan financing

Talk to friends, family and colleagues about their experiences with local dealerships and ask for referrals. Research online reviews and Better Business Bureau reports before narrowing your list of dealerships to contact. 

Another thing you can do to protect yourself is to research car sales laws and regulations in your state. You can find this information through your state attorney general’s office. Keep an eye out for lemon laws, a consumer’s bill of rights and other consumer protection laws that your dealership must follow when doing business with you.

Once you have your list of dealerships, get in touch. Some dealerships might offer online consultations — though in most cases, you’ll visit the dealership to talk to a salesperson and see what they have to offer. Once there, take note of how you are treated and how the dealership does business. 

Red Flags to Watch Out For

Below are some unethical business practices that some dealerships use to rush you into a purchase or financing deal that is not in your best interest:

Demands an on-the-spot decision

It is difficult to make a good decision while under pressure. You’ll be driving and paying for your new car for years to come. There is no reason why you shouldn’t be able to take as much time as you need to choose a car and negotiate a financing plan that works for you. If you feel like you are under pressure, leave the dealership.

Rushes through paperwork

Purchasing agreements and loan notes are contracts. You are responsible for understanding all purchasing contract terms before signing. This means that you should be able to read and understand everything in the contract. 

If you need help understanding what you are signing, ask questions and, if necessary, take a copy of the paperwork to your attorney for a consultation. If you are taking out a car loan, make use of a new purchase or refinance car loan calculator so that you’ll know exactly what you are going to pay over time.

Salespeople at unethical dealerships might try to rush you through the process of signing a contract by telling you that the language in the contract is “boilerplate” or “simply a formality.” Don’t believe them.

Contract packing

Contract packing happens when dealerships add a bunch of different options, such as extended warranties, GAP insurance, roadside assistance plans and other extras to your contract without your consent or knowledge. 

All of these add-ons can be great options, but you should know what is being added to the purchase price of your car. You have the right to approve or reject an optional product or service.


The bait-and-switch is a consumer scam in two parts: First, the dealership advertises an attractive vehicle and financing plan to catch your interest. When you visit the dealership, however, you find that the vehicle isn’t available or that you “don’t qualify” for the financing plan you thought you’d be able to get. The car, price or financing option is the “bait.”

Next, the salesperson tries to sell you a vehicle that is not of the same quality as the advertised car, or attempts to persuade you to either pay more for the car or agree to financing terms that will cost you a lot more money over time. 

This is the “switch,” and it is pre-planned. The dealership never intended to sell you the car you saw in the ad at the terms you thought you were going to get. 

Yo-Yo Scam

The Yo-Yo Scam is a variation on the bait-and-switch. You visit the dealership, find a car you like and the salesperson offers you a fantastic financing deal. You drive your new car off the lot and all seems to be well. Except a few days (or even weeks) later, you get a call from the dealership. 

They have some bad news: You didn’t get approved for the financing deal, so you’ll either have to return the car or agree to a higher interest rate. After some back and forth, you realize that the “contract” you signed was conditional on your financing being approved. 

As with a standard bait-and-switch scam, the dealership is relying on the fact that you really do need the car and that you’ll just agree to the new loan terms because you don’t want to go through the bother of taking the car back and looking elsewhere.

Protecting Yourself

Some dealers use these tactics because they work. Many people find the car buying process stressful and want to get it over and done with. Dealers know this, which is why many of these practices rely on you not carefully reviewing documents, clarifying language or questioning why vehicles or loan terms are so different from what was advertised. 

When possible, try to schedule car buying at a time when you aren’t under a lot of pressure and never feel obligated to accept an offer that doesn’t sit well with you. If red flags start to pop up, move on to another dealer. 

If you do end up purchasing a car with a not-so-great car loan, don’t worry. You have the option to apply for a refinance to try to get a better rate or better loan terms. 

Joint vs. Cosigned Auto Loans: What You Need to Know

You finally decided it’s time for a new car. That’s fantastic. You’re certainly not alone with more than 272.4 million privately owned vehicles on American city streets. Your next step is to explore your options for financing the purchase. 

And if you’re married, in a domestic partnership or want to explore all your options, you might wonder if it makes sense to take out a joint or cosigned auto loan. 

What’s the Difference Between a Joint and Cosigned Auto Loan?

Before you start shopping for your new car, it’s important to understand the difference between joint and cosigned auto financing options

A joint auto loan is when two people take out a loan together to purchase a car. Both borrowers, or co-borrowers, are responsible for making the monthly payments on the loan and have equal ownership in the car. In addition, they are equally responsible for the debt if either borrower stops making payments on the loan and defaults.

A cosigned auto loan is when one person (the cosigner) agrees to be financially responsible for another person’s (the borrower’s) debt if they default on their loan. The cosigner acts as a guarantor for the lender if the borrower can’t repay their debt. They also have no ownership rights to the car.

Both choices have pros and cons, so you must choose the right one for your unique financial situation. 

We’ll help you make an informed decision so that when it’s time to sign on the dotted line, you’ll be confident that you’ve chosen the best option.

Is It Better to Apply for a Car Loan Jointly?

When deciding to take out a joint auto loan with a co-borrower, there are a few key things to remember. We’ve identified two pros and two possible cons to take into account.

what you need to know about joint auto loans

Pro: Lower interest rates

Applying for an auto loan with a co-borrower can help you qualify for a lower interest rate. This is because lenders view joint borrowers as less risky than individual borrowers. Having two incomes also makes it more likely that you’ll be able to afford the monthly payments on the loan. 

Likewise, both credit scores will be considered when qualifying for the loan, so if one borrower has a poor credit score, the other borrower’s good credit score might help offset that.

Pro: Build a positive credit history

A joint auto loan can help you improve your credit score. This is because the monthly payments will be reported to all three major credit bureaus (Experian, Equifax and TransUnion). So, as long as both borrowers make their payments on time each month, their credit scores will gradually improve. 

This is an excellent move for situations when one borrower has little to no credit history. By taking out a joint auto loan and making timely payments, that borrower can begin to establish a good credit history. In addition, this will help with future borrowing needs, such as taking out a mortgage.

Con: Equal ownership can leave one borrower responsible

Both borrowers own the vehicle and are equally responsible for repaying the debt since ownership is jointly held. But if one borrower ceases to make their share of payments on the loan, the other borrower will still be on the hook for the whole of the balance. This can strain relationships, especially if the other borrower can’t afford to make up the difference.

Con: Ending a joint auto loan can be difficult

If you and your co-borrower have decided you want to end your joint auto loan before the loan is paid off, you have two options.

The first is auto refinancing in one borrower’s name only. In this situation, the borrower keeping the vehicle will need to qualify independently for the new loan based on their individual income, credit score and employment history. To decide if that’s a good idea, start by plugging your numbers into a refinance car loan calculator to see what your rates will be.

The other option is to sell the car and pay off the loan with the proceeds from the sale. But this isn’t always easy, particularly if you’re upside down on the loan, meaning you owe more than the car is worth. 

If this is the case, you might need to bring money to the table at closing to pay off the remaining loan balance. Some people think GAP insurance will help them in these situations, but remember that it’s designed to cover you in cases where your vehicle is stolen or totaled, not for voluntary sales.

Is It Better to Finance a Car With a Cosigner?

Taking out an auto loan with a cosigner might be the best option if you have bad credit or no credit history. But it does require finding someone comfortable with the risk and willing to help you finance a car. Here are three pros and two cons to consider before applying for a cosigned loan. 

what you need to know about cosigned auto loans

Pro: Qualify for better interest rates

One advantage of having a cosigner on your auto loan is that it can help you qualify for a lower interest rate. Similar to joint auto loans, this is because lenders, like a bank,  credit union or auto loan company, see cosigned loans as less of a risk than individual loans. 

In this situation, your cosigner’s good credit score will be factored in when qualifying for the loan, which can help offset any negatives in your credit history.

Pro: Higher approval amounts

Another advantage of having a cosigner is that it can help you secure a higher loan approval amount. This is because the cosigner’s income and employment history will be considered when determining how much you can borrow. So, if your cosigner has a good income and a stable job, this might help increase the amount you’re approved for.

Pro: Better chance for approval

A final advantage of having a cosigner is that it can help you get approved for financing in the first place. This is especially helpful if you have bad credit or no credit history. That’s because most lenders won’t approve anyone for an auto loan unless they have good credit or someone else to cosign for them.

Con: Equal responsibility

The main downside of having a cosigner on your auto loan is that they’re equally responsible for repaying your debt if you default on your loan. So, if you can’t afford your monthly payments and end up defaulting on your loan, your cosigner will be stuck with the bill — and their credit score will also suffer. 

Con: Finding a cosigner

A significant challenge with cosigned auto loans is finding someone willing to sign for you in the first place. This is because they’re taking on a lot of financial responsibility if you can’t repay your loan. 

So, you’ll need to find someone who trusts you and is confident in your ability to repay the debt. Of course, this person will also need good credit to qualify as a cosigner. 

car keys on top of an approved car loan letter

Considerations for Joint Car Loans

Before you take out a joint car loan, there are a few things you should consider.

Are you comfortable with being equally liable? 

Signing a joint loan means that you are both equally liable for the debt. If your co-borrower defaults on their share of the loan, you will be responsible for repaying the entire debt. This can significantly impact your finances, so it’s essential to be sure that you are comfortable with this arrangement before you sign on the dotted line. 

Consider your financial situation and whether you would be able to make the payments if the other borrower defaults. If you’re not comfortable with this level of risk, finding another way to purchase your new or used vehicle might be better.

What kind of relationship do you have with your co-borrower? 

It’s important to consider your relationship with the other borrower before you take out a loan together. This person will be equally liable for the debt, so it’s important to be sure that you trust them to make their payments on time. 

It’s also important to be clear about your expectations and ground rules before you sign the loan agreement. For example, discuss how you will make your payments and what will happen if one of you cannot make your share of the payment. Having this discussion upfront can avoid any misunderstandings or conflicts down the road.

Are you confident that you will both be able to make the payments? 

Before you sign a joint loan, it’s essential to be confident that you can both make the payments. Review your budget and make sure that you can afford the monthly payments. Remember that you will both be equally responsible for repaying the debt, so if one of you cannot make a payment, the other will be responsible.

Consider a joint car loan if:

  • You’re in a solid financial position and you’re confident that you can make your share of the payments, but can’t afford the vehicle you want or need on your own.
  • You trust the other borrower and are confident in their ability to make their share of the payments on time.
  • You’re comfortable with being co-owners of the vehicle and equally liable for the debt.
  • You have a good relationship with the other borrower, and you’re clear about your expectations.

Avoid a joint car loan if:

  • You’re not in a strong financial position or not confident that you can make the payments. 
  • You don’t trust the other borrower or are not confident in their ability to make their payments on time. 
  • Your relationship with the other borrower is not good, or you’re not clear about your expectations. 
  • You’re not comfortable with being equally liable for the debt. 

Joint car loans are ideal for:

  • Married couples, domestic partners or close family members who are in a strong financial position and confident that they can make the payments.
  • Those who wish to secure larger loans but have limited income or assets.

If these considerations work for your situation, a joint auto loan might be right for you.

joint car loan vs cosigned car loan

Considerations for Cosigned Car Loans

Cosigned car loans also have several factors to consider.

Do you have bad credit or no credit history? 

If you have bad credit or no credit history, you might not be able to qualify for a car loan on your own. In this case, you might need to find a cosigner who can help you qualify for the loan. Remember that your cosigner will be equally responsible for repaying the debt, so it’s important to choose a loan term and monthly payment that you can afford.

Does your cosigner have good credit?

The whole point of cosigning a loan is to help you qualify for financing you wouldn’t be able to get on your own. So, it’s crucial to choose a cosigner who has good credit. This will help you get a lower interest rate and make qualifying for the loan more manageable.

Can you and your cosigner afford the payments? 

Before taking out a loan, it’s important to review your budget and make sure you can afford the monthly payments. There might be a good reason why you can’t qualify for a loan on your own. Maybe you have a limited income or a lot of debt. 

So, even if you can qualify for the loan with a cosigner, you still need to be able to make the monthly payments. 

Likewise, your cosigner will also be responsible for making the payments if you default, so they need to be confident in their finances. If neither of you can make the payments, both credit scores will be hurt and you risk losing the car.

Consider a cosigned car loan if:

  • You have bad credit or no credit history and need help qualifying for a loan. 
  • Your cosigner has good credit and can help you get a lower interest rate. 
  • You’re confident that you can afford the monthly payments and won’t miss any, which would hurt your cosigner’s credit. 

Avoid a cosigned car loan if:

  • Your cosigner doesn’t have good credit. 
  • You’re not confident that you can afford the monthly payments. 
  • Your cosigner isn’t confident in their ability to make the payments should you run into problems.

Cosigned car loans are ideal for:

  • Those with poor credit or no credit history who need help to qualify for a loan. 
  • Those who wish to secure larger loans but have limited income or assets. 
  • People with good credit who want to help a friend or family member get a car loan, and who understand the financial and credit rating risks involved if the borrower misses payments. 

If these factors work for your situation, you might want to go with a cosigned car loan.

happy young couple standing in front of a new car

Your Credit Score and Agreeing to Be a Co-borrower or Cosigner on an Auto Loan

Before you say yes to being a co-borrower or cosigner on an auto loan, it’s essential to understand how it could affect your credit score.

Higher Debt-to-Income Ratio

Your debt-to-income ratio, or DTI,  is the percentage of your monthly income that goes toward paying off debt. It’s used by lenders to determine how much you can afford to borrow. 

When you take out an auto loan, your DTI goes up because you’re now responsible for making monthly payments on the loan. This can make it harder for you to qualify for other types of loans in the future. 

Possibility of missing payments 

Finally, it’s important to understand the inherent risk in either scenario.

When you’re a co-borrower on a joint auto loan, your co-ownership comes with the legal responsibility of making all monthly payments — even if your co-borrower stops paying their portion. If payments are missed or not made in full, this will show up on both borrowers’ credit reports and damage both credit scores accordingly, regardless of who is at fault. 

As a cosigner, the responsibility for making payments also falls on you if the primary borrower can’t or doesn’t make their monthly payment. In this situation, there is a risk to your credit score with nothing gained in return. Considering the high stakes, you should evaluate your own ability to make monthly payments and comfort level with this responsibility before cosigning an auto loan.

How to Get Out of a Bad Car Loan

With average payments for new vehicles climbing higher and higher, it’s no surprise that many people are finding themselves in a bad car loan. If your monthly payments are eating into your budget or you’re interested in a new vehicle with better rates, it might be time to get out of your current car loan. 

What Makes a Car Loan Bad?

How do you know if you’re stuck with a bad car loan? Let’s take a look at some of the key characteristics:

New car selling price was too high

The first sign of a bad car loan is an inflated selling price on the new car itself. In many cases, dealerships will inflate the sticker price of a vehicle to leave room for negotiating. 

If you didn’t have a firm understanding of what the car was actually worth, you might have paid more than you needed to. That’s why it’s important to do your research ahead of time, so you know what to expect.

Low trade-in amount

If you traded in your old car as part of the deal, hopefully you made sure that you didn’t get ripped off on the trade-in value. Again, researching before heading to the dealership to get a good idea of your old car’s value is essential. That way, you’ll be less likely to accept a lowball offer from the dealer.

Long loan term 

A loan term that’s longer than average is another red flag. This means you’ll be making payments on your vehicle for a long time, and could lead to you being upside down on your loan. This is where you owe more on your loan than your car is worth.

Also, some loans have a prepayment penalty, so even if you can pay off a long term loan early, you’d have to pay the penalty. You can check with your lender to see if your loan has one or not.

Car loan APR is too high 

The APR is possibly the most important aspect of financing a new vehicle purchase. This is the yearly interest rate on your loan and includes any fees or additional costs the lender charges. It can vary quite a bit from lender to lender. A higher APR means you’ll pay more interest over time, so shopping around for the best rate is essential before deciding on a loan. 

Expensive extras

In many cases, dealerships upsell you on extras in the finance department. These things can add hundreds or even thousands of dollars to the overall cost of your loan, so it’s important to ask questions and ensure you understand exactly what you’re paying for. 

In some cases, these extras might be worthwhile — but in others, they’re nothing more than expensive gimmicks. 

Bait and switch

Some predatory auto lenders will get you to agree to a set of terms, but when it comes time to sign the loan, the loan has different terms and conditions than what was discussed. This is why it’s important to read your loan before you sign it, and make sure you understand what the terms of the loan actually are.

Best Way to Get Out of a Bad Car Loan

Refinancing your car loan is a great way to save money, get yourself into a better financial situation and get out of a bad car loan. It’s not right for everyone, but it is an option worth considering if you find yourself in a difficult car loan situation.

What is refinancing?

Refinancing is the process of taking out a new loan to pay off an existing loan. For example, when you refinance your car loan, you might be able to secure a better interest rate. If it’s significantly lower, this can save you a lot over the life of the loan. You might also be able to extend the loan term, which could reduce your monthly payments. 

Professional woman showing a couple something on a laptop

Why should I refinance my car loan?

There are a few reasons why refinancing your car loan is a good idea. First and foremost, it can save you money. A lower interest rate means that you’ll pay less interest over the life of the loan, and extending the term of the loan can also help lower your monthly payments. 

Additionally, refinancing can help improve your credit score by allowing you to make on-time payments over the life of the loan. Use our refinance car loan calculator to see how much you could save by refinancing your car loan.

When should I refinance my car loan?

The best time to refinance your car loan is when you have improved your credit score or interest rates have dropped. 

For example, suppose you initially secured a loan with a high-interest rate. In that case, you might be able to get a lower rate by refinancing. Or, if your credit score has improved since you originally took out the loan, you might also be able to qualify for a better interest rate. 

But even if your score hasn’t changed and interest rates haven’t dropped, you may still be able to refinance to get better loan terms. This is why it’s a good idea to look into refinancing to see what you might qualify for.

How do I refinance my car loan?

The first step in securing new auto loan financing is to shop around for new loans. Then, compare rates and terms to find the best deal possible. Once you’ve found a lender who you’re comfortable with, the refinancing process is relatively straightforward. 

You’ll simply need to fill out an application and provide some documentation, such as proof of income and employment history. The lender will then run a credit check and, if you’re approved and decide to move forward with the loan, disburse the funds to pay off your existing loan. 

man driving a car

Other Options

What if refinancing isn’t an option for you? Then, there are a couple of other steps you can take to get out of your bad car loan.

Pay it off

Hopefully, your financial situation has improved since you bought your car. If so, you might just want to stick it out and pay it off. Once you do, you’ll have equity in your car.  And then, you can put the money you were using to pay your car payment toward paying off other debt, or put it in savings.

Sell or trade in the car

If your car loan is not under water, you can try to sell it for what your loan amount is (or possibly more) or trade it in for a different car. First, make sure that your car’s value is the same or more than what’s left of your car loan amount.

A Bad Car Loan Is Not the End of the World

According to recently gathered statistics, 35% of Americans had car loans in 2019. This number is not expected to change as the need for personal transportation continues to grow.

If you’re one of the millions of Americans who have taken out a car loan, it’s essential to find out if you have a bad car loan and understand your options for getting out of it. Refinancing your car loan is often the best way to save money and get yourself into a better financial situation.

Are Auto Loans Fixed or Variable?

When you take out an auto loan, your interest rate is typically fixed. However, there might also be the option of a variable interest rate.

Most consumers will choose a fixed rate for their auto loan financing because it offers predictability and stability when budgeting for their monthly payments. Fixed rates are also provided by more lenders, banks and credit unions than variable rates.

However, a variable interest rate could also offer some benefits, especially if interest rates are low when you first take out your loan. In addition, variable rates are potentially advantageous if you don’t plan to keep the vehicle long-term or don’t plan on holding the loan for an extended period.

Here’s what you need to know about both options.

What Are Fixed-Rate Auto Loans and Their Benefits?

A fixed-rate auto loan is based on an interest rate that does not change over the life of a loan. This applies to new loans and those who refinance their car loans. This type of interest rate is the most popular for car loans and is often used for mortgages and personal loans as well.

One of the best benefits of a fixed interest rate is that it makes budgeting easier. You know exactly how much your monthly payment will be, so you can plan accordingly. This predictability can be a big help when trying to add a second vehicle to your household, take on other large financial obligations or simply make ends meet.

woman sitting at desk, using a calculator and smiling

Another benefit of a fixed interest rate is that it protects you from changes in the market. You’re locked in at the lower rate if interest rates go up. But, on the other hand, if rates go down, you’re still stuck with the same payments and forfeit those potential savings.

That said, the biggest downside of a fixed interest rate is that you might end up paying more in interest over time if rates drop, especially if locked in at a higher-than-average rate to begin with. For example, according to research, Americans are paying up to 25 % more for their car loans than they were 10 years ago. So it’s essential to be informed, so you can make the best decision for your individual circumstances. If you do have a fixed rate car loan and the interest rates drop, you can always look into refinancing to lower your interest rate.

What Are Variable-Rate Auto Loans and Their Benefits?

A variable-rate auto loan is based on an interest rate that can change over time in response to market conditions. This movement is tied to an index or benchmark, such as the prime rate. Variable interest rates are also called adjustable interest rates and floating interest rates.

The biggest benefit of a variable interest rate is that it could save you money. When interest rates are low, you could get a lower monthly payment. Additionally, you can take advantage of falling interest rates without having to refinance. However, keep in mind that refinancing could still be an option. If that interests you, check with a refinance car loan calculator to see how much you could save.

If interest rates are unusually high when you purchase your vehicle and are predicted to fall, you might want to consider a variable-rate loan. In this case, you would be “betting” that interest rates will go down, which could save you money in the long run. This would require following governmental interest rate statistics and having both a sense of the market and an understanding of the risks.

stacking coins with percentage symbol over each stack

Of course, the biggest downside of a variable interest rate is that it could go up, resulting in a higher monthly payment. If this happens and you can’t afford the new payment, you might be forced to sell the car or default on the loan, which could hurt your credit score.

In addition, if rates rise sharply and you can still afford payments, you could end up with negative equity, where you owe more on your loan than the car is worth.

Nonetheless, a variable interest rate could be a good choice if you’re planning on selling the car or refinancing the loan within a few years, and interest rates are both low and steady. It could also be a good option if you’re comfortable with a little more risk in exchange for the potential to save money.

How Do You Know Which One Is Right for You?

The best way to decide whether a fixed or variable interest rate is right for you is to consider your plans for the future. For example, a fixed interest rate could be the best option if you plan on keeping the car for a long time and the current interest rates are low. This way, you lock in the low rate and don’t have to worry about market fluctuations.

On the other hand, if you’re not sure how long you’ll keep the car or if you think interest rates could go down, a variable interest rate could be the best option. However, remember that there’s more risk involved, so you need to be comfortable with that before choosing a variable interest rate.

Whichever option you decide to go for, be sure it’s the best fit for your individual circumstances.