Refinancing a car with bad credit

July 30, 2008 2:03 PM

How can I refinance my car with my terrible credit? I have awful credit, I just had a credit card cancelled a few months ago, and even a credit union (and their downstream alternative) wouldn't extend to me.

I haven't checked lately, but I imagine my FICO is in the 500s, if not lower. This is my only debt, but the interest rate is 20% (yes) and I really want to figure out how to get out from under it, just for financial sanity's sake. I am getting my credit reports now, just to make sure I don't have any identity theft accounts open or anything janky like that, but I'm pretty sure I'm clean. It just seems my bad past credit bill paying habits that bitten me here.

posted by rhizome to work & money (10 comments total)

What worked for us: 9 months of steady payments and then just calling our lender and asking for it.
posted by spikeleemajortomdickandharryconnickjrmints at 2:11 PM on July 30

I think the best way to get out from under it would be to make your regular payment and apply as much cash as you can directly towards the principal in the form of extra payments each month. You didn't mention how much you owe, however with a FICO score such as that, and admitted incidences of non-payment in the past, any person or institution who would lend to you wouldn't be giving you enough of a rate discount to make it worth the refi. However, I highly doubt they would approve you in these market conditions.
posted by Asherah at 2:13 PM on July 30

One option is to try listing on Prosper or a similar p2p lending site. It will still be a hard sell on those sites, but they tend to lend at lower than normal rates to high risk borrowers. I've used Prosper as a lender and when I did there were people with your credit rating getting loans for lower than the interest rate you have now.
posted by burnmp3s at 2:16 PM on July 30

Unless you're planning on buying a house soon or really "need" credit, don't worry too much about your score. You can fix that over time. What you need to focus on staying up with payments and bills from here on out.

Could you live without a car? Because you could sell it and make a huge dent in your loan - it might still take a while to pay off (assuming you owe more than the car is worth) but it'd be a start.

Also have you talked to the bank that carries the loan? If you say, "Look, you're either going to have to lower the rate or repossess the car..." they might listen. Yeah, it'd ding your rating even further, but in time you can fix it. They may also tell you to go screw yourself...
posted by wfrgms at 2:16 PM on July 30

A possible alternative might be to go to a car dealer and trade your current car for another. I'd expect a dealer to offer credit at maybe 10%, or anyway a lot lower than 20%. Or as wfrgms says, just sell the car; you could get cheap wheels to tide you over.
posted by anadem at 2:24 PM on July 30

I was sitting in a car dealer's office the other day (with a friend who was car shopping) and I could hear the people in the next little cubicle. They had what sounded like pretty terrible credit, and were being offered an interest rate just a bit under yours. So there's no guarantee that a dealer will (even if they can) offer much better terms than what you have now.
posted by Forktine at 2:51 PM on July 30

Uhh, with a credit score in the 500s or lower, nobody is going to give you a new auto loan or a refi at less than 20%. Actually, 20% is pretty good for credit that bad.

And if you sell the car, you're going to have to figure out how to make up the balance, so the new owner can get the title.

My advice, keep paying the car loan, on time, every time. Pay your other bills on time. Don't even apply for more credit from anyone. By the time your car is paid off, your credit will look much better.
posted by M.C. Lo-Carb! at 3:56 PM on July 30 [1 favorite]

If you owe enough money on a car that making the payments is hard, you have the wrong car.
posted by flabdablet at 7:13 PM on July 30

I didn't say I was having trouble making the payments, I wanted to know if I could find a better interest rate somehow. I suppose "financial sanity" left me open to that assumption, though!
posted by rhizome at 8:07 PM on July 30

Here is a credit union's rate sheet, giving APRs for each tier of credit risk (found randomly via google, so no guarantees about it's accuracy), but only down to Tier 4. Here, however, is another credit union (also found randomly, same caveat applying, and the rate sheet appears to be a year out of date, too) that gives rates down to Tier 5 with "approval of the credit committee."

So, there may be some credit unions that will make car loans to someone in your position. Making some more phone calls can't hurt. But my sense is that MCLC's advice is correct -- keep making the payments, improve your credit, and work from there, rather than trying to solve the situation this minute. Even six months or a year of steady payments should make a real difference to a lender (especially a credit union, which is more likely to take a holistic look at your financial situation, compared to a big lender which will look just at your FICO score).
posted by Forktine at 9:25 PM on July 30