How to Get a Low Interest Rate in a Bad Credit Auto Loan
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.
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.
AnnualCreditReport.com 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
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
- 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
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.