Interest Rates and Bad Credit Car Loans

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.


, - December 3, 2020

Interest rates are a given with almost all auto loans. But they change and fluctuate, so knowing exactly what you're able to qualify for can be a bit tricky. We have a few pointers on how to help you qualify for the best interest rate available to you.

What Is Interest?

Interest is the cost of borrowing money and it's usually expressed as a percentage, known as your interest rate or annual percentage rate (APR). The higher it is, the more it's costing you to borrow.

Interest is based on a few factors, one of them being the Federal funds rate, or prime rate. This is the amount that banks charge each other to borrow money, and it influences the interest rates consumers see when they borrow money for a car loan, a home mortgage, or other forms of credit.

Your Credit Score Determines Your Auto Loan Interest Rate

The biggest factor that determines your interest rate on a particular loan is your own credit score, though. The better your credit is, the lower your interest rate is likely to be. This means that if you have poor credit, or a low credit score from a thin file, you're likely to see a higher than average interest rate when you need to borrow money.

Auto loans in particular carry a wide range of interest rates. What you qualify for depends on your credit score, the lender you're working with, the prime rate, the amount of the loan that you're taking out, and more.

Bad Credit and Car Loan Interest Rates

When it comes to getting a bad credit car loan, your interest rate is likely to be higher than average. What you can get depends on the credit tier you fall into with your lender. Borrowers with low credit tend to see interest rates in the double digits, even if the national rate is lower.

According to data from our special finance dealership network, borrowers are currently receiving an average interest rate around 13%, which is down from the pre-pandemic average of around 15%.

The lower you can get your interest rate, the more you can save when you borrow money for a vehicle. This is because interest accrues daily on most auto loans, based on the principal balance on your loan.

Saving Money on Auto Loans

In order to save yourself the most money possible, you can try these tips for lowering your interest rate:

  • Make a large down payment – The more money you can put down up front, the more you're likely to save overall. With poor credit, you're typically required to make a down payment of at least $1,000 or 10% of the vehicle's selling price. However, putting more down lowers your loan amount, which may allow you to qualify for a lower interest rate.
  • Get a cosigner – A cosigner is someone with good credit who helps you get an auto loan when a lender is on the fence for approving you due to your lower credit. Your cosigner's higher credit score may qualify you for a lower interest rate. However, your cosigner is only there to ensure you can get the loan, and to step in if need be. You still have to pay for the loan yourself, and cosigners don't have ownership of the car with you.
  • Getting a less expensive vehicle – Borrowing less is a good way to qualify for a lower interest rate. Opt for an affordable, reliable used car or even a certified pre-owned vehicle.
  • Improve your credit score – Of course, one of the better ways to qualify for a lower interest rate is to improve your credit score. The simplest way to achieve this is by making sure to pay all your bills on time, every time. Payment history is the biggest factor that determines your credit score. A great way to start building your credit can be with an auto loan.

Even if you wish for a lower rate due to credit score, once you get a bad credit car loan, it can help build your credit so you can get a better interest rate the next time around. Taking on credit and making timely payments is the best way to boost your credit score.

Getting a Bad Credit Car Loan

If you don't know where to start the process of getting the auto loan you need, look no farther than CarsDirect! We work with a large network of special finance dealerships that spans the country, and we want to put you in touch with a dealer near you.

Bad credit and no credit are no problem when you're going through a dealership that’s signed up with subprime lenders. They look beyond your credit score to other factors to help you qualify for a car loan. To get started right now, simply fill out our zero-obligation auto loan request form.

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 1999-2021 MH Sub I, LLC dba CarsDirect.com