Can You Refinance a Car Loan With a 500 Credit Score?

A 500 credit score can make it harder to refinance your car loan, but it doesn’t mean that refinancing is impossible. Some lenders focus on borrowers with poor credit and weigh more than your score, including steady income, time at your job, and how much you still owe against what your car is worth.

The harder question is whether refinancing will help your budget. If the new rate isn’t considerably lower, fees may push you back roughly where you started.

Can you refinance a car loan with a 500 credit score?

Yes, you can find lenders willing to refinance a car with a low credit score. But you’ll have fewer options compared to someone with a stronger credit history.

Auto lenders use your credit score to gauge how risky it is to lend you money. A score of 500 signals significant risk, so some banks and traditional lenders may decline your application.

Your current auto loan may also affect your chances. Consistent on-time payments and a strong overall payment history, along with stable employment and a reliable job, may encourage some lenders to approve refinancing.

Your vehicle matters, too. Lenders consider the year, make, model, condition, and value of your car. If you owe more than your car is worth, refinancing gets harder.

Why refinancing with a 500 credit score is difficult

A 500 credit score is well into the “poor” credit category, and lenders will consider you a higher-risk borrower. There are several factors to consider.

‍Run the numbers >> Use Kikoff's auto loan refinance calculator to see whether refinancing now beats your current loan — or whether waiting for a stronger score saves more.

How lenders view a 500 credit score

Scores from 300 to 579 generally fall in the poor range for most credit scoring models, like FICO and VantageScore. A poor credit score can make it harder to find favorable car refinancing rates.

Lenders may consider other factors, such as your income, employment history, and existing debts, when deciding whether to approve you as a borrower. If your score isn’t trending upward but other areas of your application are strong, you might still be able to get financing offers to compare.

What terms to expect if you do qualify

If you qualify for refinancing with a 500 credit score, terms may include:

• A higher amount of money down
• A higher interest rate
• A shorter term
• A co-signer

Lenders add these terms to reduce how much risk they take on and to protect themselves in case you default on the loan.

Read more >> How to Know If You’re a Subprime Borrower

Lender options for auto refinancing with poor credit

If you want to refinance a car loan with a 500 credit score, shop around to compare your options. Credit unions, subprime lenders, and online lenders may be more likely to offer you refinancing terms.

Credit unions

Credit unions can be a bit more flexible than banks, especially if you’ve been a long-term member. Most credit unions require membership to be eligible for their financial products, including loan refinancing.

Talk to a representative to see if becoming a member is worthwhile based on your financial profile.

Subprime auto lenders

Subprime lenders focus on borrowers with poor or limited credit. These lenders may provide an option when traditional banks turn you down. A subprime loan doesn’t adhere to standard lending recommendations, which means it is inherently riskier. Lenders that offer subprime refinancing options charge a higher interest rate.

Online lenders

Online lenders are another option worth exploring, especially if you reach a dead end with more traditional lenders. You may be able to compare offers before submitting a full application, which can speed up the process.

Look out for predatory lenders that offer exceptionally high interest rates. It’s also worth factoring in the total interest you’ll pay over the life of the loan.

Signs auto refinancing may hurt more than help:
• The rate you're offered matches or exceeds what you're already paying
• The lender adds origination fees or prepayment penalties that erode the savings
• The new term stretches years past your current payoff date, raising total interest even if the monthly payment drops

How to improve your chances of getting approved

If you have a low credit score and want to increase your odds of getting approved, you can try several tactics.

Apply with a co-signer

A co-signer on your auto loan who has a high credit score and reliable income can increase your approval odds. The lender considers the co-signer’s credit profile and income when evaluating your application.

The co-signer is accepting responsibility for your debt. If you stop making payments, their credit can be damaged, too. Make sure the person you’re asking to co-sign understands that risk before they sign a loan with you.

Show proof of stable income

If you have a stable income and a good debt-to-income ratio, it can offset some of the risk that comes with a low credit score. Lenders want evidence that you can afford the payment.

Build equity in your vehicle

Equity is the difference between what you owe and what the vehicle is worth. Here’s how the amount you owe and the market value of your car determine your equity, comparing two different vehicles.

Positive equity is appealing to lenders, as they can recoup their losses if you default on the loan.

Improve your credit history before applying

If you can wait to refinance, work on your credit profile. Pay your bills on time, lower your credit card balances, and decrease your debt-to-income ratio. Building your credit is a long game.

Read more >> How Long Does It Take to Build Credit?

When refinancing may not be worth it

Before refinancing, it helps to evaluate your financial situation to determine whether the timing makes sense. Here are some instances when waiting to refinance may be worth considering:

• The new interest rate is as high or higher than the existing one
• The refinance lender isn’t offering favorable terms
• The new loan adds multiple years to your existing repayment timeline

Refinancing should save you money in long-term interest payments, lower your monthly payments, or both. Otherwise, it’s usually best to stick with your existing loan term.

Consider talking with a financial advisor, credit counselor, or other professional for guidance specific to your situation. The National Foundation for Credit Counseling (NFCC) can connect you with free or low-cost counseling at 800-388-2227.

Read more >> How to Pay Less Interest on a Car Loan

Build toward a better offer

You can often refinance your car loan with a 500 credit score, but the offers you’ll get tend to trade a bad rate for one that’s only slightly better, sometimes over a longer term that costs more overall. A few months of building first usually beats refinancing now.

Kikoff's Credit Account reports your on-time payments to all three credit bureaus, building the payment history that carries the most weight in your score. No hard credit check required.

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Signs auto refinancing may hurt more than help:
• The rate you're offered matches or exceeds what you're already paying
• The lender adds origination fees or prepayment penalties that erode the savings
• The new term stretches years past your current payoff date, raising total interest even if the monthly payment drops

How to improve your chances of getting approved

If you have a low credit score and want to increase your odds of getting approved, you can try several tactics.

Apply with a co-signer

A co-signer on your auto loan who has a high credit score and reliable income can increase your approval odds. The lender considers the co-signer’s credit profile and income when evaluating your application.

The co-signer is accepting responsibility for your debt. If you stop making payments, their credit can be damaged, too. Make sure the person you’re asking to co-sign understands that risk before they sign a loan with you.

Show proof of stable income

If you have a stable income and a good debt-to-income ratio, it can offset some of the risk that comes with a low credit score. Lenders want evidence that you can afford the payment.

Build equity in your vehicle

Equity is the difference between what you owe and what the vehicle is worth. Below, explore examples of how the amount you owe and the market value of your car determine your equity:

Positive equity is appealing to lenders, as they can recoup their losses if you default on the loan.

Improve your credit history before applying

If you can wait to refinance, work on your credit profile. Pay your bills on time, lower your credit card balances, and decrease your debt-to-income ratio. Building your credit is a long game.

Read more >> How Long Does It Take to Build Credit?

When refinancing may not be worth it

Before refinancing, it helps to evaluate your financial situation to determine whether the timing makes sense. Here are some instances when waiting to refinance may be worth considering:

• The new interest rate is as high or higher than the existing one
• The refinance lender isn’t offering favorable terms
• The new loan adds multiple years to your existing repayment timeline

Refinancing should save you money in long-term interest payments, lower your monthly payments, or both. Otherwise, it’s usually best to stick with your existing loan term.

Consider talking with a financial advisor, credit counselor, or other professional for guidance specific to your situation. The National Foundation for Credit Counseling (NFCC) can connect you with free or low-cost counseling at 800-388-2227.

Read more >> How to Pay Less Interest on a Car Loan

Build toward a better offer

You can often refinance your car loan with a 500 credit score, but the offers you’ll get tend to trade a bad rate for one that’s only slightly better, sometimes over a longer term that costs more overall. A few months of building first usually beats refinancing now.

Kikoff's Credit Account reports your on-time payments to all three credit bureaus, building the payment history that carries the most weight in your score. No hard credit check required.