Is It Possible to Get a Low Interest Rate in Bad Credit Auto Financing?

It has been the norm: People with bad credit get high interest rates in auto loans. That’s because lenders need to reduce the risk in lending to people who are less creditworthy to pay back the loan.

So is there any way you can still get approved for a low interest rate even if you don’t have spectacular credit?

There are actually several ways.

Low Interest Rates

1) Take a good look at your credit report.

First things first: Obtain a copy of your credit report at least 3 months before applying for a loan and examine it carefully. Your credit report may contain errors and these errors can unnecessarily lower your credit score.

You can get a free copy through, a government-authorized website run by Experian, TransUnion and Equifax. allows you to have a copy of your credit report from each of the three major credit bureaus in the U.S. for every 12 months. With this privilege, there’s no reason to be ignorant of your credit situation.

These credit reports do not contain your credit score yet, though. You would have to pay for it. Invest in your credit score so you can more precisely estimate the interest rate you might get.

2) Be diligent in fixing your credit.

As soon as you find out your credit score and how your credit history looks like, start planning how you will fix your credit. And yes, try acquiring a better credit first instead of taking out a bad credit auto loan right away.

You can start by listing down all the outstanding debts you have and identify which carries the highest interest cost. That is the first debt you should pay down, advisers suggest. Then do the following:

  • Pay bills on time. Records of late payments greatly damage your credit report.
  • You should also refrain from using your credit cards for all your purchases. You need to keep your balances low on these.
  • And pay off as much debt as you can instead of moving them around.

3) Head to banks and credit unions first.

Banks and credit unions offer the lowest auto loan rates in the auto lending market. In 2013, banks' credit standards have loosened up. A lot of consumers who do not have excellent credit are able to afford a vehicle with banks financing the purchase.

Meanwhile, credit unions have always been considerate when it comes to their members. They normally look past the credit situation and extend help as much as they can.

If you are a member of a credit union, take advantage of this privilege. Inquire about their auto loan rates before approaching other lenders.

4) Dole out as much money as you can for the down payment.

The recommended size of a down payment for a car purchase is 20%. A bigger down payment can lower the interest rate or reduce the overall cost of the loan.

As of 2013, people can make only an average of 11%. That’s not really an issue because it’s better than skipping the down payment.

Remember that even if you are not able to gather up enough cash, going for zero-down auto loans is never an option. These offers can actually be costlier especially if you have bad credit.

5) Sign the paperwork with someone.

Get a cosigner. A cosigner can help you get approved for a car loan when you have dull credit. He or she must have excellent credit and be willing to pay back the loan if ever you can’t.

Lenders can lower the interest rate when they see that you’re applying with a cosigner because they are assured that the loan will be repaid. Try to convince someone you trust to be your cosigner when applying for a bad credit auto loan.

However, make sure that you don’t miss a payment; otherwise your cosigner’s credit can get damaged along with yours.

Get Approved