What Can I Expect My Interest Rate to Be on a Bad Credit Auto Loan?

While it’s tough to put an exact number on what your interest rate is going to be, we can help you understand what determines the kind of numbers you can expect. An easy way to understand interest is this: the better your credit score, the lower your interest rate is most likely going to be. However, there’s more to it than just your credit.

What Determines Interest?

It’s no surprise that your credit score is the biggest factor in determining your interest rate, but did you know that these five other factors affect it as well? Let’s take a look at them:

  1. What Can I Expect My Interest Rate to Be on a Bad Credit Auto Loan?The lender – Each lender has different programs and different loan tiers, so what one lender qualifies you for may differ from another.
  2. Your state – Each state has its own laws regarding interest rates, and this can affect what you qualify for.
  3. The vehicle – Older, high-mileage used cars usually qualify for higher interest rates than brand new vehicles.
  4. The federal rate – The Federal Reserve sets the Federal funds rate every quarter, which banks base their lending rates on and, in turn, influences the rates consumers receive.
  5. Your loan term – The shorter your loan, the lower the interest rate you’re more likely to get.

According to ValuePenguin, people with credit scores under 660 see an average interest rate of 13% on a 60-month car loan in 2019 – well above the national average of 4.21%. Interest charges can rack up quickly, and if you’re on a tight budget, you may find yourself wondering how you can lower the amount of interest you pay.

How to Lower Your Interest Rate

If you’re worried about your bad credit raising your interest rate, that there are ways you can lower it or save money.

The best way you can offset a higher interest rate is by making a larger down payment. You most likely aren’t going to lower your rate by doing this (although some lenders may), but you could save yourself hundreds, or even thousands, of dollars in interest charges in the long run by making a large down payment upfront.

Another way you could get a lower interest rate is by adding a cosigner with a good credit score to your loan. This allows you to "borrow" their good credit, and may result in a lender offering you a lower interest rate, as the loan is now viewed as less risky in their eyes.

The Bottom Line

In a way, you have some control over the interest rate you qualify for. Generally, the better your credit score, the lower the interest rate you’re going to be eligible for. Unfortunately, things happen, and sometimes your credit score takes a hit. It can take months and even years to recover from bad credit, but if you need an auto loan, all hope isn’t lost.

At The Car Connection, we work with a nationwide network of special finance dealerships that have the lenders available to help. We connect people to dealers that have the proper lending resources for their situations every day. Simply fill out our no-obligation car loan request form today, and we'll get started on the process of matching you with a local dealership!


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