Refinancing your car loan can certainly be your ace in the hole if you're in a condition to pull it off. Be that as it may, life as we know it is full of unpredictable and unavoidable events that, more often than not, put you behind on payments. 

So, the question that naturally comes to mind is, can you refinance a car loan if you're behind on payments?

In a nutshell, most banks and lenders are likely to deny your refinance application if you're behind on payments. That being said, you aren't completely helpless in the matter. You still might have a few options available to you, depending on your financial situation, credit history, and more.

For your convenience, I have already done the research and gathered all the relevant information on the matter. So, without further delay, let's dive into it.

What Does Refinancing a Car Loan Mean?

Refinancing your car simply means that you'd be replacing your previous loan with a new one that comes with a different loan term. 

This new agreement could be with your previous bank or lender through renegotiation or with a new one. 

Either way, a new loan term can be beneficial to you by cutting down the interest rate, extending the loan term if you have trouble with monthly repayments, and more.

Why Is It Hard to Qualify for Refinancing If You're Behind on Payments?

When you're behind on your payments, it makes it riskier for your bank or lender to invest in you. As a result, most banks, large online lenders, and credit unions have strict requirements when it comes to financing or refinancing an auto loan. 

Financiers are simply unwilling to work with borrowers who are behind on their payments.

Also, another reason behind the difficulty in qualifying for refinancing can be negative equity. Negative equity means a situation where you owe more than what your car is worth. 

Being behind on your repayments is one of the chief reasons for negative equity.

Possible Options That Might Work for You

While you're most likely to get rejected for refinancing if you're behind on your payments, all hopes are not lost. Here are a few possible options still open to you that you can go for.

Discuss it with your financier

If you've missed a payment or are about to miss one, the first thing you wanna do is talk to your lender. In most cases, your financier wouldn't want you to default on your loan as much as you wouldn't want to. 

Consequently, your lender might be willing to work with you, depending on your situation.

Your lender might have several options for you to work around a missed payment. So, before you take a step, make sure to contact them.

Do Your Work to Catch Up

Finding ways to increase your income is a good way to focus on catching up with your payments. Also, you can always reevaluate your budget and cut down expenses in other areas to catch up sooner. 

Even if you end up with defaults, a paid one is always much better than an unpaid one when it comes to getting approved.

Sell Your Car or Trade-In

If you're willing to, selling your car and using the money to pay off the loan completely can be another good idea. You might even get more out of it through a private sale compared to a trade-in. However, if you do need to own a car, you can trade it in for something affordable.

Get Your Financier to Defer Your Payment  

If you're behind on your payment, you can try to convince your lender to defer your payment. This allows you to skip the payment that's behind for the time being. These payments are usually added at the end of the loan.

Ask Your Lender for Forbearance

If your lender agrees to forbearance, you can pause your payment for a short time or temporarily lower your payment. This helps you to dig your way out of a financial fall and catch up with your payments. 

However, since each bank or lender is different in its terms and conditions, it's important that you carefully consider your options.

Get Someone to Assume Your Payments

Another possible way to qualify for refinancing would be to find someone to take over your payments. However, you'd need the permission of your lender to do this. If your lender allows, this transfer would mean that someone else would be replacing you on the existing loan along with the ownership of the car.

FAQs

Can I refinance a defaulted car loan?

Yes, you might be able to refinance your car for a better interest rate and loan term even if you have a bad credit score.

How many monthly repayments can I miss before my car is confiscated?

Usually, two or three consecutive missed payments will lead to the confiscation of your car. However, if you act smartly enough, you just might be able to avoid this.

What does my credit score have to be to be able to refinance my car loan?

There's no consistent minimum credit score to be eligible for refinancing your loan. You might be qualified for refinancing a car loan even if you have a bad credit score

Will I be able to refinance my auto loan with the same bank or lender?

Yes, you can usually refinance your car loan with the same lender. However, much of it depends on your lender and if they're willing to refinance your loan. However, you'd want to go through what other banks and lenders are offering so that you don't miss out on anything.

Here's The Bottom Line

Refinancing your car loan while being behind on your payments is usually a no-go. The right course of action in such a situation would be to catch up on your payments as soon as possible. However, if that's not a viable option for you at the moment, you'll need to look for affordable alternatives.

Hopefully, all the alternatives listed above will make it easier for you to choose an option that works for you.