The interest rate that borrowers are able to qualify for is largely dependent on their credit score. And because a bankruptcy causes a person's credit score to drop, filers can expect to receive higher-than-average interest rates if they plan on financing a vehicle.
A bankruptcy negatively impacts a person's credit score, but the impact varies depending on the overall shape of their credit. According to MyFICO.com, a person with great credit before filing can expect a large drop in their score. Meanwhile, someone with previously spotty credit can expect a more modest (but still significant) drop.
People who have been through a bankruptcy can still get approved for a car loan despite a bad credit score. However, they should note that many banks and credit unions do not work with bad credit or post-bankruptcy applicants. Instead, the best chance of being approved for these consumers is through a special finance dealership.
Special finance dealerships are equipped to handle adverse credit situations because they are signed up with subprime lenders. These lenders put far less weight on a person's credit score and instead evaluate a number of different factors when making approval decisions.
However, a person with a bankruptcy on their credit report poses a risk to lenders. Therefore, post-bankruptcy borrowers can expect to face a higher-than-average interest rate on a car loan. But what do they qualify for on average?
Average Car Loan Interest Rates after Bankruptcy
The credit bureau Experian provides a breakdown on the automotive finance market four times a year. Their quarterly State of the Automotive Finance Market report breaks down data they collect pertaining to car loans, including average interest rates for people across all credit score ranges.
Here is how Experian classifies credit score ranges:
- Super prime: 781 - 850
- Prime: 661 - 780
- Nonprime: 601 - 660
- Subprime: 501 - 600
- Deep subprime: 300 - 500
Now, we can look at the average car loan rate consumers from each classification were able to qualify for. According to Experian's latest data from the third quarter of 2016, the average interest rate on a used car loan was:
- 9.47 percent for nonprime borrowers
- 15.72 percent for borrowers with a subprime credit score
- 18.98 percent for deep subprime borrowers
The average APR for a new vehicle loan was:
- 6.39 percent for nonprime borrowers
- 10.65 percent for borrowers with a subprime credit score
- 13.53 percent for deep subprime borrowers
Again, Experian's data is telling us the average car loan interest rate for borrowers who fall in those credit score ranges. It's important to remember that when it comes to bad credit car loans, every applicant is evaluated individually.
Therefore, it's entirely possible for somebody who has been through a bankruptcy to receive a different interest rate than somebody else who also has filed for bankruptcy.
Finding Financing
If you have bad credit and need a car loan, CarsDirect is here to help. We have a nationwide network of car dealers that specialize in helping people with imperfect credit, even those who have been through a bankruptcy.
We can help you get connected to one in your area if you fill out our online loan request. Our service is free and we work fast, so you have nothing to lose by getting started today.