When you’re researching, you may find that borrowers with less than perfect credit tend to qualify for higher interest rates on auto loans than those with good credit. While it can be tough to determine exactly what your interest rate is going to be, don’t be surprised if it ends up being high if you have bad credit. However, there are ways you may be able to qualify for a lower interest rate.
What Determines Your Interest Rate?
The reality of bad credit car buying is that you’re more than likely going to be dealing with a high interest rate, which increases the overall cost of the loan. While your credit score plays a role in determining your interest rate, it isn’t the only thing.
Here are four other factors that determine your interest rate:
- Your lender – No two lenders are alike, and it’s common to see different interest rates offered by different lenders.
- Vehicle choice – If the car you choose is older and/or has more miles on it, your interest rate is likely to increase.
- Federal rate – The Federal Reserve sets the interest rate that banks loan to each other, which also affects the rates they charge borrowers. This rate can fluctuate quarterly.
- Residence – The state you live in can affect your interest rate, as can the city.
As we mentioned, we can’t tell you exactly what your interest rate is going to be. However, you should be aware of what might determine your rate ahead of time so you’re not caught off-guard.
2 Ways to Lower Your Interest Rate
Now that you know what goes into determining your interest rate, how do you get the lowest rate? There are two key things that can help you lower your interest rate:
- Improve your credit score – The easiest way to get a better interest rate is to improve your credit score. You can do this by paying all your monthly bills on time, and keeping your credit card balances as low as possible.
- Add a cosigner or co-borrower – Although this isn’t foolproof, you may be able to lower your interest rate by adding a cosigner or co-borrower to the loan. When you include a cosigner or co-borrower, you “borrow” their good credit to get approved for financing. You have a better chance of getting a better interest rate with a co-borrower, since you can combine incomes if they are your spouse. Make sure you check with the lender about this ahead of time.
Getting the Auto Loan You Need with Our Help
The bottom line is that the better your credit score, the lower your interest rate typically is. But getting a good interest rate isn’t always possible if you have bad credit or no credit, which can put a damper on your car buying experience.
Getting approved for an auto loan can be a challenge on its own if you're dealing with less than perfect credit, but Auto Credit Express can point you in the direction of a dealership that has the lending resources you’re looking for.
All you need to do is fill out our fast and free car loan request form, and we’ll get right to work connecting you to a local dealer!