Can I Lower My Car Loan Interest Rate?

Get Car Financing
Even with poor credit.

By

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 1, 2020

If you have bad credit and need a car loan, you're probably already trying to think of how you can lower the cost while still getting a reliable vehicle. A good way to ensure this is to get the lowest interest rate you can. This is no easy task as a borrower with bad credit, but we've got four tips that can help.

Car Loan Interest Rates Explained

Borrowers with credit scores of 660 and lower are typically considered bad credit borrowers. If your credit score is in this range, you may fall into one of three categories: nonprime, subprime, or deep subprime.

People in these three groups usually need to find auto financing through a subprime lender that can work with credit-challenged situations. However, there's a price to pay for being financed with less than perfect credit – higher interest rates.

Interest is the cost of borrowing money, and the rate you qualify for is mainly influenced by your credit score. Generally, the higher your credit score, the lower (better) the interest rate. There are other factors that contribute to interest rates, of course, including the federal funds rate, the lender you're working with, and the length of your loan.

4 Tips for a Lower Auto Loan APR

Now that you know what interest is, it's time to look at how you can get the best rate for your credit situation. It's most effective to put these tips into practice, or to be ready to use them, before you get your car loan. If you already have an auto loan that's difficult to afford, you may still have options, which we cover later.

  1. Build credit – A better credit score can help you qualify for a lower interest rate, which saves you money. Building your credit score is the simplest thing you can do for yourself, and it doesn't take as much work as you may think. Somethings as simple as paying your bills on time and lowering your credit card balances helps.
  2. Apply with help – If you're looking to lower your interest rate, applying with a cosigner or a co-borrower can sometimes help. Adding someone to your loan with a good credit score can increase your odds of getting approved, and if their score is strong enough, you may even find yourself in the running for a lower interest rate.
  3. Rate shop – Though rate shopping is often easier for people with better credit due to more lender options, it's still a good idea to shop for the best interest rate you can among subprime lenders. Rate shopping means applying for the same type of loan from multiple lenders, in order to find the best rate available. When you do this, all the hard inquiries made on your credit count as one instead of several, which keeps your credit score in better shape.
  4. Down payment – A down payment is one of the best things you can do for yourself when it comes to a car loan. As a bad credit borrower, you're generally required to make a down payment of at least $1,000 or 10% of a vehicle's selling price. However, the more you put down, the better off you are. If your down payment is big enough, you save money by borrowing less, lower your monthly payment, and reduce what you end up paying in interest charges. Plus, you may even be able to qualify for a better car than you thought possible with enough money down.

Keep in mind that everyone's credit situation is different, so you may not qualify for the same rate as someone else even under what appears to be similar circumstances.

Refinancing Your Car Loan

If you're not able to qualify for an interest rate that's as low as you'd like, you may have the option to lower your rate later. If you took out a bad credit auto loan with a high interest rate, it's been over a year, and your credit has improved, you may be able to refinance at a lower rate.

Refinancing is typically done to reduce your monthly payment. This can be accomplished in two ways: by lowering the interest rate or extending the loan term. A lower interest rate is the best way to save when you refinance. It lowers the monthly payment, as well as reduces the interest charges and overall cost. Extending your loan term lowers your monthly payment, but it increases the interest charges, and costs you more over the loan term.

If you can’t qualify for refinancing but still need a lower payment, you might consider trading in your vehicle for something more affordable.

Ready to Find Your Next Auto Loan?

Whether you're shopping for the best interest rate before you buy, or are ready to find something with a more affordable price tag than what you're driving, CarsDirect wants to help.

You can research new and used cars on our site, and when you're ready, you can fill out our free auto loan request form from the comfort of home. Once you do that, we'll get to work matching you to a special finance dealer in your area that's signed up with subprime lenders who are ready to help get you into the vehicle you need!

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.

Get Your Free Score

Auto Insurance

Get competitive quotes on insurance in your area.

Vehicle Warranty

Protect your vehicle and you could save thousands on auto repairs.

Get a Free Quote

Need a Car Loan?

It only takes a minute.

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Do Not Sell My Personal Information|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2020 MH Sub I, LLC dba CarsDirect.com