How to Get a Lower Interest Rate Car Loan with Bad Credit

December 17, 2019

How to Get a Lower Interest Rate Car Loan with Bad Credit

Having bad credit doesn’t mean car buyers have to pay sky-high interest on their loans. The competition by private lenders to provide car loans to buyers is heating up. This is particularly true if the buyer is in the market for a pre-owned vehicle. Some dealers are offering low-interest car loans to move inventory from their lot.

Getting Approved for a Bad Credit Car Loan

The odds of getting approved for a bad credit car loan has skyrocketed over the past decade. Private and alternative lenders have moved in to provide vehicle financing for most everyone including those with less than stellar credit histories.

In most cases, a bank or credit union won’t touch car loans to individuals with a credit score lower than 650. These financial institutions generally offer the lowest interest rates available on their loans. New car dealers often offer 0% APR to borrowers, but again, to those whose credit score is above 700.

So, what can a bad credit car buyer do to finance a vehicle at an affordable interest rate?

Know Your Credit History

Canadian consumers can pull their credit report once per year for free from Equifax and TransUnion credit bureaus. Pull yours before you start shopping for vehicles. Study it and have any errors corrected. If you find there are unpaid bills, pay them immediately and keep a record to show prospective lenders.

Note any anomalies that have lowered your credit score. If you had decent credit until you were downsized from a good-paying job, note that to present to the lender. Alternative finance companies want to provide car loans to people but are concerned about the risk of default. Prove to them that the credit score isn’t reflective of how you pay debts, but that you experienced some negative life circumstances beyond your control.

Make as Large a Down Payment as Possible

A borrower making a down payment reduces the risk for the lender. By borrowing less than the vehicle is worth, the lender can offer a lower interest rate. A down payment also signals that you can manage your finances effectively.

Offer a Trade-In Vehicle

A trade-in works much the same as a down payment. It reduces the loan amount versus the value of the car reducing lender risk.

Have Someone with Good Credit Co-sign

If you have a friend or family member with good credit, ask if they’ll co-sign for the car loan. Because they are guaranteeing the loan, you’ll receive a lower interest rate car loan based on their credit rating. But beware. If you make late payments or default on the loan, you’ll negatively affect the co-signer’s credit rating. This can be detrimental to the relationship.

Shop Car Loan Interest Rates at Several Lenders

If obtaining car or truck financing is the only thing holding you back from purchasing a vehicle, then take the opportunity to shop for the lowest interest rate. You basically have a two to four-week window to get car loan pre-approvals and secure a loan without further harming your credit score.

Some used car dealers and private lenders partner with up to a dozen financing companies to find the most affordable loan possible.

Bad Credit Car Loan Approvals at All-Time High

In some cases, it may not be possible to get a lower interest rate car loan with bad credit. Fortunately, car loan approvals can be as high as 100% at some lending facilities and car dealers. Those with bad credit can finance an inexpensive vehicle at the prevailing interest rate. Simply make the payments on time, raise your credit score, and refinance at lower interest rate. Or trade the vehicle in, choose a better vehicle, and get a lower car loan interest rate based on your payment history.

YourCarLoan partners with hundreds of lenders and car dealerships throughout Canada to make car shopping easier. Instead of applying to individual lenders, car buyers can simply fill out a pre-approval application and have it sent to dozens of lenders and pre-owned car dealers in the applicant’s geographic area. One simple step leads to multiple offers at the lowest car loan interest rates possible.

See what interest rate you qualify for. Its free and there’s no obligation to borrow.

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