What's defined as a good interest rate on a bad credit car loan is subjective. Your credit score plays a large role in determining the interest rate you can qualify for, so borrowers with bad credit often can't get the best rates available. Luckily, there are ways you can lower your interest rate, and we’re here to tell you how you can do it.
3 Ways to Lower Your Car Loan Interest Rate
According to Experian, the average auto loan interest rate for borrowers with credit scores between 501 and 600 was 12.42% for new cars and 17.52% for used cars in the first quarter of 2019.
You don’t have to be stuck with the interest rate you’re given, and there are ways you can qualify for a better one. While each car buyer’s experience is different, it doesn’t hurt to try these three things to help lower your interest rate, especially if you're buying a vehicle with bad credit:
- Improve your credit – The better your credit score, the lower the interest rate you’re typically going to qualify for. Pay all your bills on time, and keep the balances on your credit cards as low as possible to improve your credit score.
- Have a cosigner or co-borrower – Adding a cosigner or co-borrower with good credit could lower the interest rate you get. You attach their credit profile to your loan, so the lender considers this when determining your interest rate.
- Rate shop – Don’t stick to just one lender, see what multiple lenders can offer and compare them. Make sure you rate shop within a given time frame, usually 14 days, to avoid multiple hard inquiries affecting your credit score.
4 Things That Determine Interest Rates
Your credit is just one factor that determines your interest rate. You can control some of these factors, but you may not have the same choices that someone with good credit has if you have bad credit.
These four other things also affect your interest rate:
- Your lender – Different lenders offer different interest rates, so check out multiple lenders if you can.
- Car you choose – The older the vehicle, and the more miles it has, the higher the interest rate is likely to be.
- Federal rate – The Federal Reserve sets the interest rate banks loan to each other, which affects the rates they charge consumers, and this rate can go up or down every three months.
- Where you live – Interest rates also vary based on which state and city you live in.
If you find that you can’t lower your interest rate right now, you can always take the rate you’re offered for now, improve your credit score over time, and refinance your auto loan for a better rate.
It’s going to take time before you can refinance, but as long as you take steps toward improving your credit score, you should be able to qualify for a better interest rate down the road.
The Bottom Line
The lower your interest rate, the cheaper your car loan is in the long run. Unfortunately, when you have bad credit, it can be tricky to get a low interest rate – especially if you don’t have cosigner or co-borrower. The best thing you can do is try to rate shop, pick the best option available, improve your credit score over time, and refinance down the road.
If you don’t know where to look for financing, we’ve got you covered. At The Car Connection, we work with a nationwide network of dealerships that have the lending resources available for bad credit consumers. Getting started is simple. Just complete our free and fast auto loan request form, and we’ll get right to work connecting you to a local dealer.