Consumers with low credit scores are often worried about getting a high interest rate on their car loans. It’s true that your credit score is a large part of what rates you can get in vehicle financing, but there are some ways to increase your chances of getting a lower interest rate.
Negotiating Your Auto Loan Interest Rate
When you’re preparing for an auto loan and your credit score isn’t so great, you may have to expect to pay more in interest charges. Lenders typically charge more interest for borrowers with poor credit scores, but we’ve got some tips to try for a low rate.
1. Know Your Credit Situation
We’re not just talking about knowing your three-digit credit score – we mean to know what rates other borrowers are getting with scores similar to yours. According to Experian’s State of the Automotive Finance Market report in the third quarter of 2021, borrower’s average interest rate by credit score are:
| Credit Score | New Car Average Rate | Used Car Average Rate |
| Super prime (781-850) | 2.58% | 3.68% |
| Prime (661-780) | 3.64% | 5.35% |
| Nonprime (601-660) | 6.32% | 9.77% |
| Subprime (501-600) | 9.92% | 15.91% |
| Deep subprime (300-500) | 12.99% | 19.85% |
These are just averages, but these can serve as a good baseline for what interest rates you may expect from a lender and the start of negotiations.
If you don’t know what’s on your credit reports, then visit www.AnnualCreditReport.com to request your three, free credit reports from the national credit bureaus. It’s free weekly access until April 2022 due to the financial stress of the pandemic, so take advantage of this access while you can!
2. Consider a New or Newer Car
You may have noticed in the average rates that new cars get a lower interest rate than used ones. This is because used vehicles with heavy mileage, wear and tear, and expired manufacturer warranties, have a higher chance of mechanical breakdown.
Auto lenders care about the condition of the car and its price. Additionally, since newer vehicles tend to be more expensive, borrowers are more likely to choose a longer loan term, so lenders may be more likely to negotiate a lower rate given the longer term. Used cars, comparably, tend to have lower loan balances, so lenders may try to make up for that with a higher interest rate.
It may be wise to choose a newer or certified pre-owned vehicle for a chance at getting a lower rate. While getting a clunker can be cheap now, you may pay more in interest and possible repairs long-term. For bad credit borrowers, it’s a dance between reliability, affordability, and cost.
3. Have a Large Down Payment
When you have poor credit, a lender’s biggest concern may be your ability to repay the loan successfully. Since they may consider you a “higher risk,” a high interest rate could be possible. However, by fronting a large down payment, you’re telling the lender you’re able and willing to invest in your own success and decreasing your risk as a borrower. This is called skin in the game. Research has shown that borrowers that put money down on their car loans have a higher success rate.
Generally, bad credit auto lenders require a down payment anyway, typically at least $1,000 or 10% of the vehicle’s selling price. You’re welcome to put down as much as you want, and trade-in equity also counts as cash down.
4. Bring a Cosigner Along
If you have a cosigner, they let you borrow their good credit score to assist you in getting approved for a car loan and possibly qualify you for a lower rate than if you were to apply alone.
Cosigners also agree to repay the loan if you’re unable to, increasing the odds of successfully completing the loan. Borrowers with poor credit scores may be asked to have a cosigner in order to qualify, even more so if applying with traditional auto lenders from banks or credit unions. Even if a cosigner isn’t required for you to qualify for a car loan, they could still increase the chances of getting a lower rate on your auto loan.
Start the Search for a Dealership
All this preparation is great in theory, but if you can’t find an auto lender that can work with your credit situation, then it’s all for naught. Here at Auto Credit Express, we want to help you along on your car buying journey by connecting you with a special finance dealership that knows how to assist in unique credit circumstances.
To get started, complete our easy and free car loan request form. We’ll look for a dealer in your local area, and there’s never an obligation, so what are you waiting for?
