How to Qualify for a Lower Interest Rate on a Car Loan

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Even with poor credit.


Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - August 26, 2020

Your credit score is a large factor in qualifying for a good interest rate on your next car loan. However, if your credit isn’t the best, you could be looking at double digits and paying extra for your vehicle.

Credit Scores and Interest Rates

Your credit score is largely used to measure your ability to repay credit. Think of your credit score as a quick summary of your credit reports, expressed as a three-digit number that ranges from 300 to 850, according to the FICO credit scoring model. FICO is the most commonly used credit scoring model in the U.S.

But what do you do if your credit score isn’t the best and you only qualify for a higher interest rate than you would like (or you’re struggling to qualify at all)? You’ve got a few options to check out that can increase your chances of qualifying for more favorable loan terms.

Work on Your Credit Score

Sometimes, working on your credit score is easier said than done. But it’s worth it since your credit score is a major player in determining what interest rate you qualify for on an auto loan.

We have some quick pointers to boost your credit score:

  • Pay your bills on time. It may sound simple, but paying your bills on time is one of the best things you can do to improve your credit score. Payment history is the most influential factor that makes up your FICO credit score. One missed or late payment can remain on your credit reports for up to seven years, and they can really lower your credit rating. Stay on top of your bills and your credit score will thank you.
  • Lower your credit card balances. Your credit card balances also carry a lot of weight. If you owe more than 30% of your borrowing limits on your credit card(s), bring that balance down before you seek a car loan. A borrower that owes a lot on revolving credit accounts can appear to be relying on credit too much, and it could mean getting turned down for an auto loan.
  • Check your credit reports for errors. You can request your credit reports for free once a week right now due to the coronavirus pandemic. This means that you can track your credit score and check out what your credit reports are saying about you in live time! You can request your credit reports from If you find an error that’s hurting your credit score, you can dispute it and get it removed to boost your credit score.
  • Add utilities that aren’t reported to your credit reports. Do you have bills that aren’t reported on your credit reports, but your payment history is great? Consider adding them to your credit reports. Our partner offers a service that allows you to connect bills to your credit reports so that the on-time payments can be reported, and raise your credit score. Learn more here.

Consider a Cosigner on Your Car Loan

If your credit score isn’t the best, a cosigner could be a solution to qualifying for a lower interest rate and increasing your chances of getting approved for a car loan.

Cosigners help by lending you their good credit score, and lowering your chance of defaulting on the auto loan by promising to make the payments if you can’t.

Cosigners don’t make the car payment each month, and they don’t get ownership rights to the vehicle. However, how well you handle the auto loan does impact them.

If you start missing car payments, not only does it lower your credit score, it brings theirs down, too. On the plus side, if you make all your payments and complete the auto loan successfully, then both you and the cosigner can walk away from the car loan with better credit scores.

As far as who can be a cosigner, really anyone except a spouse (who would become a co-borrower instead because your incomes are combined). Most often, cosigners are family members, but they can be a friend or a coworker – as long as they have a good credit score and have the income to pay for the loan if you can’t.

Rate Shopping for Auto Loans

You may have heard that simply applying for auto financing can lower your credit score if the lender pulls your credit reports. However, there’s a way to lessen the impact on your credit score: rate shopping.

If you apply for the same type of financing with a few lenders within two weeks, only one hard inquiry impacts your credit score. This is called rate shopping, and it’s a great way to see what kinds of interest rates you can qualify for with different lenders, and choose the right one for you.

You shouldn’t feel pressured to go for the first interest rate or car loan you’re offered. There are many ways to finance a vehicle out there, and you should take your time in finding the right one for your situation.

Finding a Dealership for You

With so many auto lenders out there, it can be hard to narrow it down. If your credit score isn’t the best, it could feel like your car loan options are limited. For many bad credit borrowers, traditional financing isn’t the right avenue. So, where do you go next?

Right here with CarsDirect! If you’re ready to start the process of getting into your next auto loan, but your credit score isn’t in the best shape, look no further. We have cultivated a nationwide network of dealerships that are signed up with bad credit car lenders. To begin the search and get matched to a dealer in your area, complete our free auto loan request form.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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