How Bad Credit Affects Your Auto Interest Rate

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Even with poor credit.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - June 12, 2018

While your credit score impacts your interest rate, there are other factors that’ll determine what kind of interest rate you qualify for.

Beyond Bad Credit

There’s no doubt that your credit score is a big factor in determining what interest rate you qualify for. But subprime lenders look beyond your credit score and examine two other things to determine your interest rate:

  • Loan term – How long do you plan on taking to pay back the loan? With the average loan term increasing – past 70 months (almost six years) – comes higher interest rates. If you’re unable to keep your loan term under 60 months, you may be able to refinance later for a better rate.
  • New or used – What vehicle do you plan on getting? If you’re buying used, your interest rate will automatically be higher compared to buying new. The reason why is because older cars represent more of a risk. Lenders offset this risk by raising the interest rate.

Finally, keep in mind that although a vehicle’s mileage won’t affect the interest rate, it’ll affect the loan term the lender will allow you to have. Higher mileage generally means a shorter loan term, which will then make your monthly payment higher.

Once a lender determines what you qualify for, they’ll offer you a loan with the interest rate tier listed. This tier will determine the interest rates you qualify for based on vehicle age and the loan term you choose.

The Bottom Line

When taking out a subprime auto loan, you can expect higher than average interest rates. Having a high interest rate isn’t ideal, but once your credit improves you can either refinance to get a better interest rate or trade the car in and receive a better interest rate on the new loan. If you’re just starting the car buying process, and need a subprime lender to work with, we want to help connect you to one.

Here at CarsDirect, we know that not all dealers work with the lenders that can help you get a loan if your credit is less than perfect. We work with a nationwide network of dealerships that have lenders that work with bad credit, no credit, and even bankruptcy. Get started today by filling out our fast and free auto loan request form.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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