Bad Credit Auto Loan Rates

Getting the best rate on your Bad Credit Auto Loan

People with good credit rarely have a problem getting great auto loan rates. Further, it’s easy for them to know as theirs is the rate that gets advertised! It’s not surprising that when a lender or manufacturer advertises auto loan interest rates, they give the lowest one… the one only available to their best customers. But, what about the rest of us? If over 60% of Americans are considered non-prime, how do we estimate rates for our bad credit auto loans?

To estimate your bad credit car loan rate, know that at least six factors come into play. Two of them are beyond your control. The other four are not. Further, they are critical to getting a good rate on auto loans for bad credit.

Under your control: Control these factors and you control the rate on your bad credit car loan!

• The car you buy. New auto loan rates are often 1-2% lower than used auto loan rates from the same dealer. For example, while a national lender recently advertised 36-month new car loan rates of 6.0%. Its used car loan rates were 20% higher at 7.3%. While a new car doesn’t fit into everyone’s budget, buying one may lower your interest rate.

• Who you buy from. Our survey of used car loan rates for people with good credit showed that buying a car from a licensed dealer carried an average 7.3%. Buying the same car from a private party would incur a used car loan rate of 8.3%, a 13% increase. Why? Lenders want to know the loan collateral (the car) is in good shape. If you buy from a private party, the loan rate may include charges to inspect the car. Click here for more information on working with car dealers.

• The loan term. Car loan interest rates generally increase with the length of the loan. Recent 3-year loan rates were 12% lower than 6-year loan rates. Therefore, good or bad credit auto loan, the shorter the term the lower the rate. Also, the shorter the term the fewer payments and the less total interest paid. A 48 month 15.75% bad credit auto loan will cost you almost $6,000 less than the same bad credit auto loan with a 60 month term.

• Your Credit Score. We recently surveyed rates from a number of lenders from across the U.S. Interest rates on car loans for bad credit (590- FICO score) were more than twice as high as interest rates on car loans for good credit (720+ FICO score). In fact, while the national average good credit car loan rate was 7.2%, the average bad credit car loan rate was 15.1%. That’s a 110% difference! So, while you can’t change your credit score overnight, invest the time to improve your score gradually. Check out our consumer credit guide for more information on your credit score.

• The Prime Lending Rate. Interest rates are tied to the rate of inflation which changes with the economic cycle. While those of us looking for bad credit car loans can rarely delay our purchases, it may be helpful to know that rates may change 20-30% or more over the economic cycle

• The local market. Some sites give the impression that you need to run out to find rates in your neighborhood. Save yourself the time! Auto loan rates vary less than 1% cost to coast. So, while California bad credit car loans may be 0.5% above the national average and Alabama bad credit car loans may be 0.5% below the national average, no one is going to move to save less than 1%.

Disclosure: We developed the content for SmartCarCredit™ while working with automotive industry clients. We hope you find it helpful in making informed decisions. While we believe the information to be accurate, we do not guarantee its accuracy.