How Soon Can You Refinance a Car Loan With Bad Credit?

By Angela Monroe - May 22, 2019

To refinance a car loan is to get a new loan from a new lender to pay off the balance of your existing car financing. There are plenty of reasons for doing this, including scoring a lower interest rate, reducing your monthly payments, saving in interest charges, removing a co-signer and shortening or extending the loan term.

While there is no minimum amount of time required before you can refinance a car loan, it’s best to wait at least two years from the time you signed the original loan contract, especially if you want to refinance a bad credit car loan.

Refinance a Car Loan After 2 Years

Waiting for two years before refinancing a car loan gives you enough time to work on your bad credit score. Lenders will also check your payment history to see how you manage the repayments.

Improved Credit Score

You took the bad credit car loan because you couldn’t qualify for a prime auto loan. However, your financial position and creditworthiness may have significantly changed after that.

If you’re able to make on-time monthly debt repayments and improve your bank account conduct from the time that you got the loan, it’s likely that your credit score has improved. With a better credit rating, you can get better car financing deals and lower interest rates.

Change in Your Financial Situation

If your salary has increased or if you have received a significant amount of performance bonus following your approval for a bad credit car loan, you may already have enough money to pay off the balance or refinance the loan with a lower interest rate. On the other hand, if you lost your job and cannot afford the repayments, you can refinance to extend the loan term.

Underwater on the Loan

If you want to refinance a car loan but you’re currently underwater on the loan, settle the negative equity first. This will help you get the approval of lenders. Most lenders only allow refinancing if the car’s actual cash value is higher than the loan payoff.

You can pay in one lump sum if you have the money. Otherwise, wait until the car’s value is equal to or more than your loan balance.

Helpful Reminders

  1. Shop for better deals. When you’re all set to refinance a car loan, it’s best to shop around for better deals than work with the same lender. Just make sure to limit your loan inquiries to two weeks. Any hard inquiries can negatively affect your credit score. However, pre-approval applications that are made within a two-week period are likely to be counted as a single inquiry.
  2. Apply online. It’s smart to apply with lenders that process applications for car loan refinancing online like Positive Lending Solutions. Aside from convenience, the processing and decision for approval are also fast.
  3. Make sure the refinancing is worth it. It’s wise to refinance with a car loan that you owe more than $10,000 to gain the maximum savings even if there are penalties for leaving your existing car loan or setup fees on your new loan. Also, most lenders do not allow car loan refinancing below this amount. Remember that they will not allow you to finance an amount that is greater than a certain percentage of the actual value of your vehicle.
  4. Leave no room for typos and errors. Don’t forget to keep your personal information consistent and vehicle information accurate. These details will help the lenders determine the amount they will allow you to finance.


Loans For People With Bad Credit works with you and our partnered lenders to find a car loan that best suits your situation. Call 1300 769 384 or fill out the Bad Credit Loan Pre-Approval form to know your options.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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