Yes, you can negotiate your interest rate with an auto lender. One of the better ways to negotiate your car loan is by having a good credit score. But what if your credit score is so-so or not so great? Here are five tips on negotiating a lower interest rate for your auto loan if your credit score isn’t your greatest asset.
5 Tips on Negotiating Your Interest Rate
Since it’s hard to boost your credit score at a moment’s notice, here are some other tips that could help you qualify for a low interest rate on a car loan:
- Know what’s on your credit reports – A good credit score isn’t the only factor in your auto loan eligibility, because your credit reports have a say, too! If you have previous auto loans reported on your credit reports that have good payment history, point them out to the lender. A positive payment history, especially a previous car loan, is proof that you can handle repaying installment loans. Additionally, you can look up your credit score and research the average interest rates that borrowers with credit scores similar to yours are getting to gain some haggling power.
- Choose a vehicle in good condition – Historically, new vehicles typically get assigned lower interest rates on their loans. This is because newer cars tend to have less chance of mechanical breakdown, and are likely equipped with better technology and safety features than older models. If the car you want has a clean title, is under 10 years old, and its vehicle history report is clear of major accidents, then you may be able to qualify for a lower interest rate. A certified pre-owned vehicle may be a good option to explore if you want a newer car without the high price tag.
- Have a sizable down payment – A large down payment lowers the amount you need to finance, which lowers your risk as a borrower. The smaller your loan, and the more manageable the monthly payments, and the more negotiation power you may hold as a borrower. Down payments have been proven to lower the risk of default which is great for both you and the lender! Typically, bad credit auto lenders require at least $1,000 or 10% of the vehicle’s selling price. A 10% or larger down payment can increase your approval odds and possibly land you a lower interest rate.
- Rate shop – Rate shopping is when you apply with multiple lenders of the same type within a short period, usually two weeks. When a lender requests your credit reports, it can lower your credit score by around five to 20 points, depending on your current credit rating. However, if you apply with more than one auto lender within 14 days, only one hard inquiry impacts your credit score. All hard pulls are reported, but only one carries the weight. Find a few lenders you want to apply with and then do it within two weeks to compare rates, loan terms, and contacts, and choose the right one for your situation.
- Have a cosigner – Cosigners can be a big help for bad credit borrowers in need of a car loan. They lend their good credit score to you to meet credit score requirements. They also promise to repay the loan if you can’t, backing up the loan and decreasing the chance of it falling into default. A cosigner could also increase your odds of getting a lower interest rate if your credit score isn’t perfect.
Ways to Boost Your Credit Score
If you’re still a few months away from being ready to get an auto loan, fixing up your credit score before you apply is worth it. Credit repair can take time, but you can get the ball rolling with these tips:
- Review your credit reports for errors and work to get them removed. This is called a dispute. If you find something incorrect on your credit reports, you can dispute it (online, too, with all three credit bureaus). If it’s found to be wrong, the credit bureau reporting it removes it and it could improve your credit score.
- Keep old accounts open. Got an old credit card that collects dust in your wallet? Good! Keep it open even if you haven’t used it in a while. Older accounts improve your credit score since the FICO credit scoring model favors borrowers with older, active credit accounts.
- Pay down your credit cards to less than 30% of their limits. If you have multiple credit cards with a balance of more than 30% of their limit, it could be harming your credit score. Amounts owed is a big part of the FICO credit scoring model and borrowers that aren’t overextended in their revolving credit (credit cards) may have a higher credit score. Paying your credit card balances down could give you an extra boost in points before you apply for a car loan.
- Pay everything on time, all the time. The biggest factor in your overall credit score is your payment history. If you miss a payment, that one missed payment could drastically lower your credit score depending on your current credit rating. Before you apply for a car loan, work to get any missed or late payments resolved.
Need a Car Loan Now?
Not everyone has the luxury of waiting until their credit score is in better shape to apply for an auto loan. If you’re in this boat, then we want to throw you a lifeline here at The Car Connection. Over the last 20 years, we’ve cultivated a coast-to-coast network of special finance dealerships that assist borrowers with credit challenges. To get matched to a dealer in your local area with bad credit lending resources, complete our free auto loan request form.