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I Bought a Car With Bad Credit. Should I Refinance? – Joylynn

Written by Steve Rhode

“Dear Steve,

I bought a newer car in 2011. I am paying 8.61% because of past credit card problems. I couldn’t get a co signer so I just went with it. Now I have paid (on time 100%) on it for two years.

I am now starting a good job and I want to refinance to get a lower interest rate. When I bought it, my credit score was around 630 and I was working two jobs and going to school full time.

Now I am graduated (with loans still deferred) and starting my first “real” job. My credit score is around 655.

Just want to know the best time to make my move. PS, I am underwater on my car and I don’t think I want to get rid of it for a different car unless it is better for me.

How long should I wait with my new job to apply for refinancing and should I go more local with my own credit union or refi with the original loan maker (Ally Financial, GMAC)?


Dear Joylynn,

Nice to hear things are looking up for you. Congratulations.

casual woman saving moneyThe lack of movement on your credit score seems to indicate you have not done much to build your credit score in the last two years. If we can get your credit score up the opportunities to refinance will be better. Typically used car financing is a higher rate than new car financing.

So if we took the next six months to focus on getting you a better credit score and then consider refinancing at that point, would that make sense to you?

Right now the average loan rates reported by MyFICO with your credit score are are 10.827% for new cars and 14.887% for used cars.

The first thing I’d suggest doing is to go to and register to get your free credit score. They also have a great smartphone app that will allow you to monitor your progress and score.

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The site also has a great credit score modeling tool to show you what changes need to be made to increase your score.

Unless you have some major credit cards reporting to the credit bureaus, your score is going to remain flat.

So let’s focus on rebuilding your credit as fast as we can. Read this guide.

Besides, your payments over the next six months will help to reduce the amount you are upside down.

We also want to get those student loans out of deferment as soon as possible. Read The Ultimate Guide to Dealing With Student Loans You Can’t Afford and get you into a regular habit of saving even a bit of money each month in an emergency fund and for retirement.

Does that sound like a reasonable approach to take right now?

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


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

About the author

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.

1 Comment

  • Thanks for the advice! I want to pay on my student loans even though they are deferred. I have three and they are going to hurt for a while. I have some other small debts I want to pay off as well to free up my monthly expenses. I use Credit Sesame and it is a lot like Credit Karma. I know what is wrong with my credit, I just need the money to pay things off. Thanks for helping me out!

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