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What is the Interest Rate for a Used Car Loan with Bad Credit?

Unfortunately, it is impossible to give you an exact answer to ”what is the interest rate for a used car loan with bad credit.” Not that we don’t want to, there are just to many variables to consider. What we can do is tell you what some of those variables are and give you some interest rate estimates.

Variables That Will Be Considered

One of the first factors that will be looked at is why you have bad credit. Did you lose a job and fall into financial disrepair for a short time or have you developed a habit of not paying your bills? Do you have recent repossession or a bankruptcy? If your credit miscues are all related to one incident(job loss), you may be offered a better interest rate than someone who is a habitual debt risk. Additionally, a recent repossession or bankruptcy will lead a lender to require a higher interest rate.

Lenders are also going to look at your debt-to-income (DTI) ratio. If your recurring monthly payments, including the payment for the loan your are applying for, are more than 35 percent of your gross monthly income, then you will be required to pay a higher interest rate.

One other item to consider is the amount of your down payment. With bad credit, you will need to have at least $1,000 or ten percent of the total purchase price of a car as a down payment in cash just to get a lender to consider your loan. The lower your credit score is, the more money you will need to offer down to keep from having to pay a higher interest rate.

Estimated Interest Rate

Bad credit can be any score that falls below FICO’s ”Good” category. That means any score between 500 and 659 is considered ”Bad” to one degree or another. Based on the prime interest rate being offered today, a person who has a credit score ranging between 620 and 659 will most likely pay 8 and10 percent interest on a used car loan. If your score falls between 580 and 619, you can expect to pay up to 13 percent interest for a used car loan. Should your score be 579 or lower, you will be required to pay between 14 and 25 percent interest on a used car loan.

There are a few things that you an do to boost your credit score before you apply for a bad credit auto loan. The first is to get a free copy of your credit report at With that in hand, you should look for small accounts that you can pay off or errors that need to be corrected. You can also open a credit card account. An open paid-as-agreed account will boost your score within a few months. With bad credit you may have to open a secured account, but the boost to your score is well worth it.

You will want to avoid buy-here-pay-here (BHPH) dealerships if at all possible. These dealerships do not report their loans to the major credit agencies, so the loan will not improve your credit score for future loans. Your best alternative to BHPH is an online specialty lender. These lenders work with bad credit applicants to offer them a loan that fits their budget and report all loans to each of the major credit agencies, boosting your score every month, as long as you make your payments as agreed.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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