Score a Low Interest Used Car Loan with Bad Credit

A low interest used car loan isn't out of reach even if you have a few blemishes on your credit report. You can take steps to improve your chances of qualifying for a loan and position yourself for competitive interest rates.

Don't Disqualify Yourself

Many people with a poor credit history or bad credit score believe they cannot qualify for a loan and so disqualify themselves from the process. They give up trying. Don't make this mistake.

In the past, lenders did look down on poor-credit borrowers. But as the lending industry became more competitive, lenders began offering loans to higher-risk borrowers. The catch was the interest rates were typically high as well.

Today, because of the Internet and the entry of many non-bank lenders into the market, the competition works for you. Lenders no longer avoid customers with spotty credit histories. They want your business if they believe you are able and willing to repay a loan. Additionally, because of competition, while you might not get the lowest rate possible, a low interest used car loan is within your reach.

Know Your Credit Score

The first step to getting a low interest used car loan is to know your credit score. You are entitled to one free credit report from the major credit reporting agencies each year. And if you have already used that one free report, additional reports are not very expensive, usually $30 or less.

You must know how you compare to other potential borrowers before you approach a lender. You must also take every step you can to address the questions a lender will ask based on your credit history.

If you have had late payments, be prepared to explain why it happened and why it won't happen again. If you had a particularly difficult time financially that resulted in your poor credit history, show how you have solved those problems.

Know Your Lender

Anyone can apply for a loan on the internet and you will receive the exact interest rate that your financial position and credit standing earn you. Interest rates on loans are always driven by the amount of risk the lender assumes by lending to you.

However, this is less science and math when it comes to dealing personally with a lender. The Internet doesn't know you. You can't look the Internet in the eye and convince it you are good for the low interest used car loan you believe you deserve.

If a bank has your auto, home or personal loans, those relationships can be a factor in lowering the risk the lender associates with you and that can mean a lower interest rate.

Know What You Can Afford

It is vital that you find out how much loan and at what interest rate you can get given your current financial circumstances. In other words, meet with your lender first to know the best deal you can get and only then go shop for a car. Don't fall in love with a car and expect a lender to give you a low interest used car loan because you really, really want a certain vehicle.

You improve  your chance of getting a lower interest rate by demonstrating to your lender your responsibility in the auto-buying process.

Know The Value of Your Car

You might be offered what appears to be a very competitive interest rate by an auto dealer. But a really low interest used car loan is not what it appears to be if the car is overpriced. In other words, low interest on a much larger loan amount is not really an advantage to you. By the end of the loan, you likely will have paid more than on a higher interest rate loan with a car fairly priced.

Again, it pays to know what you can borrow and what the interest rate will be before finding a car you feel you must have. Getting a low interest used car loan if you have bad credit requires this kind of discipline and forethought. The result can be a competitive loan on a car you like that actually helps you repair that bad credit standing.

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