When you have bad credit, you’re likely to only qualify for a higher than average interest rate on a car loan. However, being prepared is one key to auto loan success, and you can get ready by researching the average interest rates for bad credit car loans that are available to people in your credit score range.

Average Interest Rates for Lower Credit Scores

Car loan interest rates are primarily based on your credit score. Generally speaking, the higher your credit score is, the lower the interest rate you can qualify for. The opposite goes for borrowers with lower credit scores.

A credit score isn’t the only factor that influences your interest rate, however. The national prime rate – which has been on the rise – also makes a big impact on how high the average interest rate is. Additionally, the lender you’re working with, the vehicle you're financing, and how long of a loan term you choose can also impact what's available to you.

According to Experian's State of the Automotive Finance Market report from the second quarter of 2022, the average bad credit auto loan interest rates on vehicles are:

 FICO Credit Score Range 

 Experian Classification 

 Average Used Car Interest Rate 

Average New Car Interest Rate

300 - 500

Deep Subprime

20.43%

12.84%

501 - 600

Subprime

16.85%

9.75%

601 - 660

Nonprime

10.33%

6.57%

How Your Interest Rate Affects Your Auto Loan

When you’re dealing with the higher interest rates that come with less than good credit, it can bump up the cost of the car you’re financing. This is because interest accrues daily based on the balance of your auto loan. The higher the interest rate, the more you’re going to pay in interest charges.

Let’s look at an example of how the interest rate you qualify for impacts the overall cost of your car loan. Say you took out a $20,000 loan with a term of 72 months (six years). Check out the difference in total cost between a 6.57% interest rate for decent credit on a new car, and a 20.43% interest rate on a used car for the lowest credit tier:

72 Months  

 Monthly Payment 

 Interest Paid 

 Total Cost 

6.57% Interest Rate

$337

$4,254

$24,254

20.43% Interest Rate

$484

$14,852

$34,852

In this example, we’re using a loan term that’s becoming increasingly popular due to the rising cost of auto financing. A longer loan term lowers the monthly payment but raises the overall cost of your loan. As you can see, lower credit could potentially mean paying more for a used car.

Since you’re likely to see these higher rates with poor credit, one way you can lower the overall cost of your car loan is by opting for a shorter loan term. If we assume the same $20,000 financed but use a 60-month loan term, you save money overall by lowering the interest charges. The shorter your term, the fewer interest charges you're going to pay.

60 Months  

 Monthly Payment 

 Interest Paid 

 Total Cost 

6.57% Interest Rate

$392

$3,519

$23,519

20.43% Interest Rate

$535

$12,080

$32,080

Ways to Minimize Your Interest Charges

Besides shortening your loan term, there are several other ways where you could save money in interest charges. Here are three suggestions:

  1. Average Interest Rates for Bad Credit Car LoansMake a down payment – Down payments make a difference in the amount you pay in interest charges since you’re reducing the amount of your loan right from the start.
  2. Stay off the “trade-in treadmill” If you trade in a vehicle with negative equity, a lender may allow you to roll it from your previous loan into the new one. This increases the amount of the new loan, leaving you with a bigger loan balance on which interest can be charged.
  3. Pay off your loan faster – A surefire way to save money in interest charges is to pay off your loan faster and reduce the amount you owe on the loan. The faster you can reduce your auto loan balance, the more money you save.

Improve Your Credit for a Lower Rate

Just because you have bad credit doesn’t mean you can't get a car loan. You should be prepared for a higher interest rate, but you can always reduce interest charges using the above strategies. The good news is that you can get an auto loan and rebuild your credit score at the same time. Getting a bad credit car loan allows you many years to make on-time payments and build your credit history and therefore, your credit score. This means that by the time you're ready for another auto loan, your credit may have risen enough to allow you to qualify for lower interest rates.