I have been in the DMCC program for about 2 years. My credit has improved a lot and I am not to far from reaching a credit score of 700. I am trying to refinance my car because I have an interest rate of 29% on my current auto loan. I have never missed a payment in 3 years and have another loan that will be paid off in two years with the same finance company. They are willing to give me another loan with just as high an interest rate, but would not refinance my car because they say that they are high risk company. My question is, what can I do to refinance my car to have a lower rate? I have tried to refinance but I always get rejected even though my credit has improved drastically. Thank you. Dafra fromTucson,AZ

First of all, let me congratulate you for all of your hard work trying to get your credit back on track. I am glad you followed through with the program that DMCC designed for you. Your commitment to the program has paid off and your 700 credit score is a great achievement.

Now, regarding your auto loan, probably one of the reasons that you are getting rejected for refinancing is that most likely you owe much more than the vehicle is worth. This is probably the result of the extremely high 29% interest rate you have been charged. When you make monthly payments to the finance company, most of that money is directed toward paying the interest. Because you have such a high interest rate, only a small part of your monthly payment is directed toward the money you borrowed to pay for the car—the principal. Meanwhile, as the years pass (we can assume the car is at least 3 years old), the car loses value—depreciates. Any lender would think twice before lending you the amount of money that you need to refinance your loan when the car that you are paying for is not even worth that much.

Another problem that you may be having is that, although your credit has improved, you are still considered a credit risk. Your credit score might be close to 700, but not until you reach that number will you qualify for preferential rate offers. This news might sound disheartening, but do not fret! You are not out of options yet. You are more likely to get a good rate on a loan from a bank or financial institution that you already have a relationship with. Speak with the bank where you have your checking or savings account. If you do not have a checking or savings account yet, now is the time to open one. Build a relationship with a reputable bank and then ask them about what sort of loans they offer. If you are a good customer, chances are they will want to give you a lower rate in order to keep your business. Do you have a home mortgage? If so, ask the bank that holds your mortgage about what kind of rates they offer.

If you still cannot get a loan with better terms than what you already have, you should consider raising your monthly loan payment in order to pay off more of the principal of the loan. Just by adding $100 to your monthly car payment, you can significantly reduce the amount of time it will take you to pay off the loan and the amount of interest charges that you will end up paying.