Get a great deal on your auto loan even with Bad Credit!

We may earn money or products from the companies mentioned in this post.

Most people know that their credit score will have a major impact on the auto loan interest rates they will qualify for. The truth is, a bad credit score can lead to you paying a higher interest rate, if you can even get a loan in the first place.

Speaking from experience, I can tell you that there are two things that could happen if you’re looking to get an auto loan and have bad credit:

  1. You pay a higher interest rate
  2. Just wait for your credit to improve

If the idea of a high interest rate isn’t palatable to you, then you’d have to bite the bullet a wait for years until the black marks on your credit report fall off. It’s really a catch-22 for most people.

Thankfully, there are ways to improve your credit score to get an auto loan. In this article I’ll go through some things to help you improve your credit score, or get a lower interest rate on your auto loan.

1. Check that your credit report has no errors

Have a run through on your credit report. Do you see anything that might be a mistake? There is no point in having to pay a higher interest rate just because your report has mistakes on it. This is easy, low hanging fruit for you. I’d always recommend tackling this before you move on to the ‘nastier stuff’!

2. Explain yourself to the potential lender

Offer the potential lenders viable explanations as to why you were late on the bills you were late on. If you can show them that at the time you were late on the bills you had been laid off or had some other household emergency, you may not get hit as hard on a higher interest rate.

Creditors are super wary of borrowers who can’t pay on time, so they naturally protect themselves by scrutinizing every last detail of your credit report. If they still feel uncomfortable, they’ll just slap a high interest rate on your to compensate them for their risk.

3. Accept a larger down payment

A big down payment can go a long way in reducing your interest rate. I’ve never really been willing to do this myself, but I know of a couple of my friends who had bad credit but had some cash to spare. They plonked a whole $10,000 down just so they could reduce their interest rate.

The higher amount you put down, the less overall risk the bank is taking (the more money down means the less they have to lend and it’s therefore less of a risk for them). Even if you have some issues on your credit report, if you can put down a hefty down payment you still might be able to get away with a more tolerable interest rate.

If your goal is just to reduce your interest rate, then by all means do this. But I dunno, I prefer to have the cash available when I need it!

4. Don’t just shop at one place

When it comes time to find the perfect auto loan you should shop around. Even with a less than perfect credit score there can be a wide difference in the interest rates banks will offer you. Get the best rate you can by shopping around.

When I got my first Ford at 26, I learnt that you should get your auto loan in the bag well with a bank or credit union well in advance – even before you start auto shopping.


Banks and credit unions will generally offer better rates than if you try to get financing through the car dealers.

In addition, by if you’re ‘pre-approved’ by these large lending institutions, your auto lenders would feel more at ease that someone else was willing to take a chance on you. This makes it tons easier for you to get more and more loans approved.

Think of it like going into a dealership with a blank check, they don’t have the ability to play the games that they do if you are relying on them for financing.

For example, they may say that the price on the car is great but in reality you are paying much more in interest. The bottom line is that the dealership will make sure to get what they consider a fair price for the car and they will make sure they reach that mark whether it’s from an increased interest rate, a decrease in the amount they give you on a trade, etc. which is why you need to find the best auto loan interest rates before you go into the dealer.


Having bad credit is never easy, especially when you’re applying for auto loans or mortgages. I hope you’ve gained some value from reading this article, and can apply some of the tips here.