How To Lower Your Interest Rate When Buying A Car With Bad Credit

Automotive Finance, Bad Credit, Credit Education, Used Cars

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car loan interest rate

Whether you’re trying to purchase a brand-new vehicle, or a used car with bad credit, it can be hard to understand the entire process of purchasing a car.

Loans, in particular, are confusing. How can you be sure you get a good deal on a car, even with bad credit? In this article, Ride Time will take a look at a few of the most common ways you can reduce the interest rate on a car loan. Let’s get started.

  1. Know Your Score – And What To Expect

Depending on how bad your credit is, you may already qualify for a decent APR on a car loan. Here are a few guidelines for auto loan interest rates, though these will vary based on your particular situation.

  • 650+ (good) credit score – 7.5% APR
  • 600-650 credit – 10% APR
  • 500-600 credit score – 14-15% APR
  • 500 and below (or no credit) – 15-30+% APR

These are just guidelines. We recommend going to a few banks in your area and inquiring about their current auto loan rates for customers with bad credit.

  1. Try To Get Pre-Approved For A Loan

Loan pre-approval is a good idea, even if you plan on financing with the dealer’s preferred lender. If you can prove that you have been pre-approved for an auto loan, your dealer may be willing to make you a better offer – and give you a better interest rate.

  1. See If The Dealer Will Lower Your Rate If You Buy “Extras”

If you have very bad credit, you may be facing a rate of 25% APR or higher, which is unmanageable and will cost you thousands in the long run.


However, you can sometimes get a lower rate on your loan if you purchase extras like gap insurance and maintenance plans for your car.

Gap insurance means that your lender will cover the difference between your insurance payout and the value of your car if it gets totaled. For example, if your car is worth $10,000 after a year, and you paid $13,000 for it, gap insurance would cover the $3,000, ensuring the loan is totally paid off in case of an accident.

Maintenance plans also help give lenders peace of mind, because they know that any mechanical issues with the vehicle will be taken care of, and the asset will be in good condition.

These services will cost you more money – so be aware of the total cost of your loan – but in some cases, you can get an APR that’s much lower, so you will pay less overall interest.

  1. Ask For A Shorter-Term Loan

If you go for a short term loan, you can pay down the principal (total amount owed) more quickly, and the creditor will get their money faster. This means that their risk is reduced, and they may be able to offer you a better APR.

  1. Put Down A Big Down Payment

If you have the money to put down a large down payment – 25-50% of the value of the car you’re buying – you’re in a much better negotiating position.

A large down payment dramatically reduces the total value of your loan and your monthly loan payment. In turn, this reduces lending risk. It’s riskier for a lender to give you $20,000 than it is for them to loan you $10,000.

  1. Prove Financial Responsibility And Solvency

If you can prove that you have the cash reserves and income to pay off your car at any time, you may be able to negotiate a better rate with a lender. Bring in bank statements, asset statements, and tax records to prove this. Some lenders may offer you a better deal if you can prove that you have adequate cash reserves to cover several months of payments.

Don’t Get Stuck With A High APR – Follow These Tips Today!

If you are interested in buying a car with bad credit, these tips can help you save quite a bit of money on interest. So think about how you can use this advice to your advantage, and shop for your car now!

If you’re interested in getting a great deal on a fantastic used car, come to Ride Time right away. We specialize in working with Canadians who have bad credit, and we’d be glad to help you get the reliable transportation that you need in Winnipeg. Learn more about what we do by contacting us now, or coming into our dealership.

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