Bad Credit Auto Loans: Best Companies of 2017

Top Auto Loan Questions Answered

1. How does bad credit affect my auto loan?

Bad credit affects your auto loan mainly in the form of interest rates. It’s a balancing act when it comes to your credit score and auto loans. Basically, when one of them is low, the other will be high. A low credit score will result in higher interest rates, but a higher credit score will result in lower interest rates. You can absolutely get an auto loan with a poor credit score, but you’ll need to be prepared to pay some extra cash due to higher interest rates.

There are a few ways you can combat high interest rates, though. First, interest rates for new cars versus used cars will vary. In general, new cars come with a lower interest rate. There are multiple reasons for this, such as dealerships wanting to move more new cars so they drop interest rates as an incentive, or the fact that dealerships know how much new cars will depreciate in value over the years. For dealerships and lenders, it’s all about calculating risk and making a decision that’s in their best interest. Often, however, their best interest and the customer’s are not the same. That’s why the second method for combating high interest rates is so important: shop around for good rates! Even if you have bad credit, multiple lenders will still offer you auto loan options, so look through multiple pre-qualification offers to see which one fits you best.

2. Can I refinance my auto loan when I have bad credit?

Refinancing is possible if you have a bad credit score. If you’re buried under a very high interest rate and you’re paying way more than the car is worth, you can refinance. However, if you’re going to refinance, make sure your credit score is a least slightly better than when you bought the car. People who benefit the most from refinancing are those who have been working on improving their credit score and have raised it a few points since they bought their vehicle.

3. How do I find a good auto loan, even when I had bad credit?

The first step to getting a good auto loan with an affordable rate is knowing your credit score. You don’t want to get to a dealership, pick out a car, then find out that you have a poor credit score when you go to apply for a loan. You’re a lot more likely to settle for a loan with an unnecessarily high interest rate if you haven’t done your research, checked your credit score, and shopped around for loans yourself.

Next, beware of anyone saying that you can get financing no matter what your credit looks like. When you hear "No Credit? No Problem!" then it’s generally a good idea to head the other direction. While these dealerships and lenders may offer you a loan, it will probably be a loan with a jacked up interest rate that’s only intended to make the dealership and lender money, not help you get into a loan that’s affordable for you.

This brings us to our third point: do your research and find a reputable lender that specializes in subprime auto loans. There are a lot of sites out there that will connect you as a consumer with lenders that specialize in working with bad credit situations. They’ll give you the best rate possible, and it will give you an opportunity to shop around and see what you should expect from a loan. This way, you’ll be better equipped to spot a bad rate if you’re offered one.