Can a Bad Credit Borrower Get a 0% Interest Rate on a Car Loan?

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Even with poor credit.

By

Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - August 3, 2021

It’s not uncommon to hear of auto manufacturers offering zero percent interest rate on a brand new car – which is a great deal! Interest is the cost of borrowing money, and some select borrowers get to borrow for free. But what are the chances of getting approved for a 0% interest rate with poor credit?

Rebates and 0% Interest Rate Auto Loans

If you’re on the hunt for a 0% interest rate, one of the better places to look for this deal is with an auto manufacturer’s lending arm, such as Ford Motor Credit, GM Financial, or Kia Motors Finance. These lending companies typically offer attractive deals to borrowers so they're more inclined to purchase the manufacturer's newest vehicles.

If you manage to get a 0% interest rate deal on a new car, you can choose a longer loan term, and a longer loan term means smaller monthly payments. You could land a low monthly payment without worrying about paying more for the car due to interest charges.

All of this sounds great, but if your credit score is poor or below 660, then you may struggle to land a 0% interest rate deal or other rebates. Most of the better deals offered by auto manufacturers are reserved for borrowers with top-tier credit – typically at least 700 and above.

Additionally, 0% interest rate auto loans are almost always reserved for brand new vehicles.

What Interest Rate Can I Expect With Poor Credit?

All lenders vary in their interest rates and stipulations. However, we can show you some averages to get a better idea of what it may cost you to finance a vehicle with poor credit.

Bad credit borrowers that use our network to get matched to a special finance dealership have an average interest rate of 13.6%. According to Experian’s State of the Automotive Finance Market in the fourth quarter of 2020, borrowers with credit scores between 601 to 660 had an average interest rate of 6.64% on new car loans, and 10.13% on used vehicles.

If you have a credit score below 600, you may have to plan an interest rate anywhere from 6% to 20% – depending on your unique situation and the type of vehicle you finance. However, choosing a new or newer car could help you get a lower interest rate, since new vehicles have less risk of mechanical breakdown, and lenders prefer financing cars in good condition.

Increasing Odds of Getting a Low Interest Rate

While qualifying a 0% interest rate with poor credit isn’t that likely, you can increase your chances of qualifying for a lower interest rate with these tactics:

  • Have a cosigner – Bringing a cosigner to an auto loan application can increase your chances of qualifying for a loan and possibly qualifying for a lower interest rate. A car loan with a cosigner means less risk for the lender, so it could mean a better loan deal for you.
  • Choose a newer vehicle – Older vehicles with high mileage aren’t as appealing to lenders, so choosing a car with a clean history could help you negotiate a lower interest rate.
  • Have a large down payment – With poor credit, there’s typically a down payment requirement of at least $1,000 or 10% of the vehicle's selling price. If you have a trade-in with a lot of equity or around 10% to 15% in cash for a down payment, it can increase your approval odds and possibly give you some negotiating power.

As a poor credit borrower, you have to plan on paying more interest charges than a good credit borrower. However, there may come a time where your credit score improves from the loan itself, and you can try refinancing down the road to get a lower interest rate.

Bad Credit Auto Loans

Bad credit borrowers often struggle to find a dealership that can assist them with vehicle financing. At CarsDirect, we aim to connect credit-challenged consumers to special finance dealerships that are equipped to work with many unique credit situations. Complete our free auto loan request form, and we’ll get right to work looking for a dealer in your local area.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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