When you're dealing with bad credit, getting the lowest interest rate you possibly can is key to keeping your car loan affordable. The latest State of the Automotive Finance Market Report, by Experian, shows that interest rates are climbing.
One way to combat rising interest rates is to improve your credit, and we can show you how.
Auto Loan Interest Rates Climbing
In the first quarter of 2021, interest rates were still declining year-over-year, but that trend seems to have turned the corner. In Q2, interest rates climbed nearly half a percent for borrowers with near prime credit, while subprime borrowers saw nearly an entire percentage point raise, increasing the average interest for this tier to 11.03%. Deep subprime borrowers saw interest rates increase just over half a percent, bringing them to 14.59% on average.
Experian Numbers Show Fewer Subprime Loans Made
According to Experian’s State of the Automotive Finance Market for Q2 2021, subprime loans are down to near record lows, only accounting for around 17.18% of the total financing that happened in the last quarter.
This number is the combined total financing that went to borrowers in both the subprime and deep subprime categories. Loans for consumers with near prime credit account for 17.95% of all new loans last quarter.
Credit Repair Tips to Combat Rising Rates
Since loans to borrowers with less than perfect credit are getting harder to come by, improving your credit as much as possible is a great way to help you qualify for the financing you need. And, if you improve your credit score enough, you may be able to qualify for better interest rates than you have on past auto loans.
Here are four quick tips to improving your credit so you can qualify for the lowest interest you can:
- Pay all your bills on time, and in full. Payment history makes up the biggest slice of your credit score, so if you can do this, you could begin to see improvement sooner.
- Don't overspend. If you have credit cards that typically carry a balance, make sure that you keep it to a minimum. Your credit starts to dip once your credit utilization ratio reaches 30%. A good rule of thumb is to only put on plastic what you can afford in cash. This way, you're sure to have enough money to pay your monthly credit card statement in full, instead of paying the minimum due and accruing more interest charges.
- Become an authorized user on someone's credit card. When you do you get the benefit of their good credit score. Remember that shared accounts go both ways in terms of credit score. So if either party starts to slip, both your credit scores drop.
- Make sure you're getting credit for the bills you pay. Some payments you make automatically, such as streaming services, utilities, and even rent, can help boost your credit score if they're reported to the credit bureaus.
Do You Know Where You Stand?
Knowing where your credit score lies is an important step in getting the car loan you need, and knowing what to prepare for. There are many ways you can get your credit reports and scores for free, usually including your bank or credit union, your credit card company, or an online credit monitoring service.
Right now through April of 2022, you can take advantage of a free service offered by Experian, Equifax, and TransUnion. They're partnering with the federal government at www.annualcreditreport.com to bring you your credit reports weekly, for free. You're normally entitled to one free credit report a year from each of the three national credit bureaus, but this was increased due to the need for Americans to monitor their credit in light of the pandemic.
Once you know what's on your credit reports and where your credit score stands you can see the areas you need to work on to raise your credit. Experian groups consumers into five credit score tiers: super prime, 781-850; prime, 661-780; near prime, 601-660; subprime, 501-600; and deep subprime, 300-500.
Ready for Your Next Car Loan?
If you're ready to find your next vehicle loan, the good news is that auto loans are a great way to improve your credit, too. Subprime lenders work with borrowers who have less than perfect credit. You may not get the lowest possible interest rate, but you can take steps to make sure you get your lowest interest rate by following our tips, and by working with the right lender.
Here at Auto Credit Express, we want to help with that, too. We know how stressful the car-buying process can be, so we want to help you cut down your search for a dealership that works with special financing. Let us point you in the right direction by connecting you to a dealer that's signed up with the lenders that can work with you.
It's fast, free, and there's never any obligation. Simply fill out our auto loan request form, and we'll get to work matching you with a dealership.