Low Interest Auto Loans for Bad Credit
When you have bad credit, it can be more challenging to find an affordable interest rate on an automotive loan than it would be with a high credit score. But that does not mean that auto loans with competitive interest rates for low credit borrowers do not exist.
In this guide, we will tell you how you can find the best rates even without perfect credit. You can also check out our comparison chart below right now to check into low interest auto loan options for bad credit.
Best Low Interest Auto Loans for Bad Credit
Why Is It Harder to Find Low Interest Rates With Bad Credit?
To understand why bad credit or no credit makes it harder to find low interest rates, you need to understand what your credit score means to a lender. Your score is a numerical representation of the risk you impose as a borrower. If your score is low, it means that based on your past borrowing behaviors, a lender is taking a significant risk financing your vehicle. If your score is nonexistent, the lender is still taking a significant risk since there is no data on your behavior.
Customers who have earned high credit scores, on the other hand, have demonstrated that they are trustworthy and reliable. Since they have tended to pay their debts off in full and on time in the past, lenders know they can expect them to keep up with their loan payments in the future.
Even though this system may seem sensible on the surface, it can be unfair. Many customers had their credit scores destroyed during the recession through no fault of their own, and have struggled to get back on track financially.
Thankfully, there are lenders that realize this and are willing to consider extending loans to customers with poor credit. Some of them also are willing to offer competitive interest rates so long as they are confident that a customer has the income to pay back the loan.
Where Can You Find Low Interest Auto Loans for Bad Credit?
Whether you are looking for 60-month car loans, 48-month car loans, 36-month car loans, or another loan term, the easiest way to find low interest auto loans is to search for them online. This gives you access to the largest possible pool of lenders and offers. Plus, quite a few lenders online specialize in offering low interest auto loans to customers who do not have perfect credit.
Tips for Finding Lower Interest Rates on Auto Loans
Along with comparing loan offers online, what are some additional tips to help you find the best interest rates on auto loans?
- Loans for newer cars tend to have more affordable interest rates than loans for older or used vehicles.
- Instead of looking for 60-month used car loans, think about choosing a shorter loan term. Why? Because used car loan rates with 60-month terms tend to be higher than those for shorter terms like 36 or 48 months.
- If you know someone willing to co-sign on a vehicle loan with you who has better credit than you do, that might help you qualify for a lower interest rate.
- Even if you do not have a great credit score, if your other financial metrics (i.e. your income amount or DTI ratio) show that you are financially stable, that will also help you qualify for affordable rates on auto loans.
- If you are willing to take out a secured loan as opposed to an unsecured loan (offer up collateral, in other words), that also may improve the interest rates which lenders offer you.
Tips for Raising Your Credit Score Before Applying for Vehicle Loans
Even if you will be applying for your auto loan very soon, there still may be steps that you can take right now to raise your credit score before applying.
- Check your credit reports. It is surprisingly common for errors to turn up on credit reports which damage credit scores. You can contest these errors and have the entries expunged, improving your credit scores.
- There are programs with the credit bureaus you can sign up for to include the utilities bills you pay in your credit score. If you have a history of timely utilities payments, signing up for this type of program can boost your score right away.
- If you have credit cards or lines of credit, check your current utilization. Is it higher than necessary? If so, pay off what you can. Once your utilization has decreased, your score may improve.
- Keep up with your current bills. Avoid missing payments or sending partial payments.
- If you have debts you can afford to pay off, do so now before taking on new debt. The less debt is on your credit report, the higher your score should be.
- If you have a reliable history as a borrower with a particular creditor, but missed a single payment, contact that creditor. Sometimes, in this situation, the creditor will agree to remove the negative entry from your record if you are now current on your payments.
- Avoid hard credit checks. If a lender performs a hard credit check, it will harm your score. So while shopping for vehicle loans, only deal with companies that run soft credit checks which do not damage your credit score. Sometimes, these types of checks are also referred to as “alternative credit checks.”
Conclusion: You Can Find a Low Interest Auto Loan With Bad Credit If You Take the Time to Comparison Shop Online
When you have a poor credit score, searching for a low interest auto loan may feel daunting. But with a wide selection of reputable lenders online offering affordable interest rate vehicle loans to borrowers with a range of credit scores, you may be surprised by the offers you receive if you are willing to shop around.
Don’t know where to begin? Scroll back up to the comparison table on this page and follow any of the links to apply now for a low interest auto loan from any of our trusted lenders.