The Real Cost of Long Auto Loans With Bad Credit

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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. 

, Content Manager - July 15, 2020

When your credit score isn’t a perfect 850 (or even slightly lower), it’s likely that you’re going to be assigned an interest rate on your car loan. Your interest rate can be anywhere from 1% to 20% (or more) – which can add up quickly. Additionally, the longer you owe money on a vehicle, the more you’re going to pay for it.

Paying More Interest Charges

Auto loans usually are simple interest loans, which means that you’re charged interest on the balance of your loan. This means that after each payment, you’re lowering the amount you’re going to pay next month, and so on. Interest charges add up a little each day, which means the quicker you pay off the loan, the less you can be charged interest on.

A long car loan term could mean paying way more for your vehicle than it's actually worth, and you could end up sitting in a negative equity position at some point in (or possibly for the majority of) your auto loan.

If your credit score is lower than average, or you’re a new borrower, it's in your best interest to choose the shortest loan term you can comfortably afford. While stretching your car loan lowers your monthly payment by spreading out the amount you're financing, it increases the amount you pay in the long run.

Many bad credit borrowers find that they need to opt for a longer loan term to make an auto loan affordable. This is typically either due to their personal budget or to the vehicle's price with a higher interest rate. But, there's a better way to get a lower car loan payment and save cash in the long run: using a down payment or trade-in.

Cash Down Now Saves Cash Later

If you’ve got your eye on a specific vehicle, but the monthly payment would be too much to handle with a shorter loan term, then putting cash down could be your answer. A trade-in could also be a great way to lower the amount you’d need to finance and help save you in interest charges. For you trade-in to help you knock down your car’s selling price, your trade-in must have equity.

Even if you only qualify for a higher interest rate, putting money down could be how you fight back against paying lots in interest charges.

Say you’re looking to finance your next vehicle for $12,000, your credit isn’t the best, and you qualify for an interest rate of 13%, so you go for an auto loan term of 72 months to make your payment more affordable.

With no down payment or trade-in, you end up paying $5,344 in interest charges. With these car loan terms, your monthly payment is around $241.

Now, let’s say you finance that same $12,000 vehicle with 13% APR, but this time you opt for a 60-month loan term with a $2,000 down payment (so you finance for $10,000). With this setup, you end up only paying $3,652 in interest, and your monthly car payment is about $227.

By shortening your loan term and putting cash down in this scenario, you save about $1,692 in interest charges, which is equal to about seven vehicle payments! Not only do you save over a thousand dollars in interest charges by putting cash down and shortening your loan term, your monthly payment is still lower than if you would’ve just opted for the longer loan term.

Bad Credit Auto Loans

Having a longer loan term can mean having a lower car payment each month. However, a really long auto loan can mean paying extra for your vehicle – which isn’t fun. To help shorten your term and make the car loan more affordable, put some cash down, or use an equity trade-in to help keep your loan term shorter. If you have a specific vehicle price and car payment in mind, you can use our auto loan calculator to help you start saving for the amount you need.

While making a down payment is a great way to lower your interest charges, it can also help you get approved for a car loan when you have bad credit. Another way to increase your chances of qualifying for auto financing is by working with the right lender for your credit situation. We’re talking about subprime lenders, and they work through a dealership's special finance department.

If you’re looking for a lender that can work with your credit, start with us at CarsDirect. We work with a nationwide network of special finance dealers, and we’ll look for one in your area for free after you complete our car 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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