A zero percent auto financing offer is typically reserved for borrowers with excellent credit. It’s very difficult to qualify for a zero percent financing program when you have bad credit, but you can take steps toward improving your credit score and maybe get a lower interest rate.
Car Loan Interest Rate Basics
When you finance a car loan, you borrow money from a lender to pay for the vehicle. In order to use the lender’s money for the loan, you pay a fee, which is known as interest. Interest is expressed as a percentage rate, and can range anywhere from a special zero percent program to well over 20 percent.
Your credit score is the driving factor behind the interest rate you qualify for. If your credit score is excellent, say over 750, you can expect a much lower interest rate. If your credit score is around 620, you can expect an interest rate near 10 percent, or possibly higher depending on other factors.
How to Improve Your Credit for a Better Interest Rate
If your credit is bad, you may have a better chance of getting a lower interest rate if you can wait to apply for an auto loan. Your credit isn’t going to improve overnight, and, depending on where your credit score stands, it could take time to build it up to the “good” range.
Not sure how to improve your score? Consider these credit building tips:
- Pay all bills on time – Payment history makes up 35 percent of your FICO credit score. By paying all your bills on time each month, your credit score rises over time.
- Consider a credit-builder loan – Credit-builder loans are exactly what they sound like. You take out a loan, and make payments on it for a set amount of time. Once you pay the loan off, you get the money back, plus interest and an improved credit score, as long as you were making all of the payments on time.
- Become an authorized user – As an authorized user on someone’s credit card, you get the benefits of the card’s history and on-time payments on it, even if you're not actually the one making them. Essentially, you “borrow” the primary user’s account to help build credit.
- Apply for another line of credit – Whether it’s revolving credit, such as a credit card, or installment credit, like a mortgage or car loan, adding a line of credit and responsibly managing it can help improve your credit over time.
If you can’t wait for an auto loan, and are faced with a higher than average interest rate, you should know that you don’t have to stick to that forever. Once your credit improves, you can try to refinance the loan and get a better interest rate.
The Bottom Line
If you don’t have excellent credit, you likely aren’t going to qualify for a zero percent APR program. It can be a hard pill to swallow, but as long as you take the time to build up your credit, you can reduce the interest rate you receive, and eventually qualify for a low interest rate program.
If you need help finding a lender who can work with your credit situation, look no further. At The Car Connection, we work with a nationwide network of dealerships that have the lending resources available for people struggling with credit. Get started today for free by filling out our car loan request form.