Can You Refinance a Car When You're behind on Payments? Find Out If You're Stuck in Your Current Loan until You Can Catch Up

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The cost of owning a car can be high, and when your car payment is inflated with interest charges, it can be a source of stress and can lead you to wonder "Can you refinance if you're behind on payments?" It's not always easy to make payments consistently each month, but missing a payment or two can have negative impacts on your credit report and score. Catching up on payments can help you take charge of your finances and expand your options for refinancing. Read on to learn more about what to do when you're behind on payments and whether refinancing is an option.

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What Is Refinancing a Car Loan?

Once you've agreed to a car loan, you're not stuck with that loan or the terms you initially agreed to. You can refinance the loan by taking out a new loan from another lender to pay off the old car loan. A common reason to refinance a car loan is if you have improved your credit and now qualify for a lower interest rate and lower monthly payments.

Another reason you might refinance is if you want to remove or add a cosigner to the loan. You may also want to get a lower monthly payment by spreading out the reduced car loan over more months. Refinancing is almost always an option to make your car loan more affordable.

Refinancing a car loan is a good option for a borrower who has made it a point to maximize their financial situation after getting a car loan and used their resources to qualify for a loan with a low interest rate. As long as you agree to the terms of the loan, you can try to refinance when you're experiencing financial challenges. Even if the lender doesn't offer a lower rate, you may get a longer loan term with more affordable monthly payments.

Can You Refinance if You're behind on Payments?

If you're late on your payments, you won't be able to refinance your car until you bring the loan back to current. In addition, you may get repeated calls and emails from the lender expecting the payment. The lender could also add a late or missed payment to your credit report and may repossess the vehicle once it has initiated a charge off the debt.

A charge-off occurs when the lender determines you will no longer make payments and then sells the debt to a collections agency. Generally, this step happens with frequent missed payments, and it hinders your ability to get a loan in the future. Therefore, it's critical to make the monthly payments on your car loan to maintain the health of your account and your ability to take advantage of certain loan modifications or get a new loan with a lower interest rate.