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Got a Bad Credit Car Loan and Want to Refinance It

“Dear Steve,

I have bad credit and am in the process of cleaning things up, but this past February I had to replace my car and got a high interest loan.

First off my wife loves your site. Any time she has questions, your site is the first site she goes to get answers and advice. I have bad credit due to job loss, I got behind on bills. Now I am in the process of paying off the debts. In February I had to get a car on a high interest loan due to my bad credit. I was in the situation where I was lucky to have been approved for the loan I did get. I only agreed with the loan in hopes to refinance later after making some payments to help me have a good chance at a getting a better interest rate. My question is if a creditor will not settle or delete the collections, will paying the account in full help my credit to where I can qualify to refinance my car? Also, how long should I pay on my car loan before attempting to refinance it? Right now I am only on my 4th payment, but am in hopes to refinance as soon as possible.”

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The Answer

Obviously your wife is a very intelligent and astute person. :-)

It’s not the length of time that you have the loan but the improvement in your credit score. If you don’t know what your credit score is I would advise that you find out. One place to go is Credit Karma and get your current credit score for free. They also have an online tool to help you uncover what factors are bringing your score down.

I suspect that the issue isn’t as much the bad stuff but the lack of additional new stuff to help pull your score up.

Before you start shopping to defiance the care loan, which is possible, I would suggest you make sure that any old negative accounts have been paid. A full payment provides you with the best result on an old item since when you settle it will show the amount forgiven as a bad debt that was not paid and written off to profit and loss. It’s still a negative mark.

Please let me know what your credit score is and more about these outstanding debts and let me try to help you build a plan of action to deal with them.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Got a Bad Credit Car Loan and Want to Refinance It
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://www.southwestdirectmortgage.com/ Mike Matney

    It’s so true. When I was desperately trying to get out of debt, I did everything I could to lower my monthly payments for my car loan, home loan, etc. It wasn’t until I attacked my debt that I started to climb out of the hole I was in. It’s true what you’ve suggested, and I hope it does help this man. 

  • P~

    Steve, I just did the CreditKarma score like you recommended and it was pretty ugly and discouraging, but I already suspected this due to my job loss issue. My CreditKarma score was a 511. Going by the credit report card, I have a credit utilization of 78% in which I am working on paying down as we speak. My goal is to get my open accounts to at least 20%. My on time payments is 90.48% (4 late payments) My credit utilization is high also because when I lossed my job, I closed one credit card and I got behind 120 days on one of my other cards with high interest in which they took my credit limit to $0.00 due to nonpayment, but left the account open. I rated a C on a healthy mix of credit accounts. I have 5 derogatory accounts on my credit in which I just paid 1 off last year and will fall off by next month and another one will fall off in December of this year. I just sent a payment in full to another derogatory account that was placed on my credit last year during my job loss. The other 2 derogatory accounts is one a old signature loan which is 5 years old and one credit card (charge off) that is 3 years old. It also doesn’t help that I found out that I have 17 hard pulls of inquiries on my credit in which half of them are from the car dealership and a few other dealerships trying to find me a lender for my current auto loan that I want to refinance badly. So really all in all I don’t have but a few old accounts to really deal with on paying off and they are pretty small amounts. So pretty much now I have been paying off the old accounts that I can at the time that is within the past 2 years and have been trying to pay down my maxed out credit accounts. So do you think that it would be wise of me to pay off the closed account and the open account with the $0.00 credit limit more than anything else first? I have even considered a debt management plan to get me out from under this mess I have created, but I figured if I can afford to pay the extra monthly money to a debt management plan ($35.00-$50.00), that it would be better for me to use that money to put towards my accounts. What do you think Steve? I am pretty overwhelmed right now afraid to make the wrong move that will hurt me instead of help me to where I can try to refinance my car sooner than later.

    • http://GetOutOfDebt.org Steve Rhode

      How much unsecured debt do you have to repay?

      How much are you and your wife able to save each month? Honestly.

      The good news on the credit score is we have no where to go but up.

      • P~

        Without the car loan roughly $7500.00 left to pay. It doesn’t show up on my credit yet, but last night I just made a few more extra payments towards paying down the unsecured debts, not much but a little. Honestly, because of us being behind on everything, I would say we could safely save about $200 a month without suffering and still making at least the minimum payments on our cards. Yes you are right about the score. It is embarrassing to admit my score has become this low, but I am in desperate need of guidance so all pride aside. My wife’s credit score is not as bad as mine, but she is still hurting on credit cause the closed card was a joint account and it won’t show until the next credit update and she has one default on a card that will probably charge off soon. Other than that she has a old judgment on her credit. She pulled her score a few weeks ago from myfico and tried the Credit Karma and her scores ranked at 618, 580, 549. Her main problem she knows is needing to pay down her cards and to try to pay down the revolving accounts. She has actually went by a lot of your advice to people on your site. Before last year, she owed well over $25,000 in bad debt and was able to get pay to delete agreements on almost all of her accounts by just using a lot of your advice and also by reading up on the  credit laws and being patient. If it wasn’t for me losing my job last year like I did, she would probably have credit scores in the high 700′s. I guess we both made mistakes in getting to many accounts opened in which was not prepared for job loss to where we became over extended.

      • http://GetOutOfDebt.org Steve Rhode

        Can you break down for me what is in just your name, her name and joint debt.

        What’s holding her back now seems to be the fact she doesn’t have new good credit pulling her score up.

      • P~

        Steve the breakdown on my debt alone is: 
        Medical Bills: $138.00 (will be paying off on Friday 0%)
        Revolving open accounts:$928.98 with average % of 22.99%
        Personal Loan:$1,675.00 (Not on credit at all, family member loan, but it is included in my debt calculations and pay $50 each month with no %)

        Collections:
        Cable Bill:$271.00 (Won’t Settle or do a pay to delete 0%)
        Medical Bills:$634(One will do a pay to delete if paid in full of $416.00 %)

        Joint Accounts:
        Closed Account(Closed late May): $421.89 24.99% department store
        Revolving Accounts: $800.00 

        Wife’s:
        Revolving Accounts Open:$1,669.91
        Collections:$846.00
        Default Account:$748.00( not charge off yet, but real soon)
        Civil Judgment:$7,160 + 9% interest since 2005

        Looking at the breakdown in all honesty it is not all that much, but because we got so far behind and did the ultimate wrong thing of maxing out each account almost and then not being able to pay certain ones or not on time has killed us credit wise. We were hoping to do the “micro payment” type deal where we could concentrate paying off one account at a time without debt payment plan and at least make the minimum payments on the other accounts.I guess the main concern that my wife is losing sleep over is the recent close account and the default store card. She says that all the work she put in over the past few years on cleaning up her credit will mean nothing cause of this recent bad stuff. So I think that is what she is most worried about is those two accounts besides paying down the open accounts.

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