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How To Get The Best Auto Loan Interest Rate

Yes, you can still get an auto loan even if you have bad credit

You may not realize it, but people with bad credit, slow pay credit, repossessions, bankruptcy or divorce can still qualify for a new car or used car auto loan. There are dealerships, banks and lenders that specialize in assisting people with less-than-perfect credit get the auto loan that they need.

What kind of interest rate can I expect?

However, people with credit challenges will always pay a higher finance charge and interest rate. Making more profit on the loan is the lender's incentive for taking the extra risk associated with making a bad credit auto loan. Sub-prime interest rates will vary, on average, between 11% and 28% depending on the severity of credit. These additional points can add up to several thousand dollars over the term of an auto loan.

Is there anything a bad credit consumer can do to get a better interest rate?

Absolutely! Here are several things that people with bad credit can do to help reduce their finance charges, interest rate, down payment requirements and monthly payments:

#1 - Get a co-signer

This can be a very emotional and touchy subject for a lot of people, but it is the single best way to get the lowest sub-prime interest rate. But you have to be willing to swallow some pride. Asking a relative or a close friend to co-sign with you can help:

  • Make getting financing easier.
  • Reduce or eliminate down payment requirements.
  • Save you a lot of money in interest over the life of the auto loan.
  • Qualify you for extended terms (60 or 72 months) which can substantially lower your monthly payments.
  • Establish positive credit as timely payments are reported on both of your credit reports.
  • A co-signer with excellent credit can get you rates and terms very close to what good credit borrowers receive.


  • A co-signer will sign the auto loan papers along with you. The co-signer will also be responsible for payments on your auto loan if you default. This does not have to be a long-term situation. If all the payments are made on time for 24 to 36 months, many lenders will let you refinance the remaining balance without a co-signer.

    #2 - Don't max out your qualified auto loan amount

    It is easier to qualify for lower auto loan rates if you apply for a lesser loan amount than you qualify for. The lower the loan amount, the less risk to the lender. So if you qualify for a $15,000 auto loan, try to find a quality vehicle for $10,000 to $12,000.

    #3 - Make a substantial down payment

    Most bad credit auto loans will require some kind of down payment. Lenders typically ask for 10% to 20% of the purchase price as down payment, although many sub-prime lenders have special LOW or NO Down Payment programs. The more money you can put down, the lower the amount financed. The lower the amount financed, the better your chances of getting a lower rate.

    #4 - Demonstrate stability

    Lenders are more likely to approve bad credit auto loans for people that demonstrate stability in their lives. They like people that have been continuously employed for several years, preferable with the same employer, and with no periods of unemployment (gaps). They also prefer to make loans to people that have lived at the same address for a period of years, or at the very least, have lived in the same area for a while. Making good choices that demonstrate stability will improve your chances of being approved for auto financing, and of getting a better interest rate.

    By taking these few additional steps and relying on your support system, you can save a substantial amount of money and establish positive credit in a very short amount of time.

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