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What is the Average Interest Rate for a Car Loan with Bad Credit?



The economy as it is depends on so many convoluted processes for it to favor today’s individual’s lifestyle that it has left so many with average or bad credit scores. Several firms are laying off workers for them to be able to meet operational expenses and hence these people experience foreclosures, delay or miss monthly loan payments. As a result, their credit scores weaken. These people themselves in such a conundrum and thus in need of a more reliable means of transport, like a car. To afford a good car, you need a decent loan amount, and this amount relies on your credit score. Do you see the pickle? For a person with an average credit score, we would approximate the average interest rate at about five to six percent while that of one with a bad credit score varies from 6.5 to 12.9 percent or even more than what you expect.

Always take into account the fact that if you have a poor credit history, the interest rates applied to your car loan can be astronomical. In hindsight, it’s all about the risk based on lending! If we take into consideration some states, 29.9 percent is the known maximum rate. Despite this, if the credit rating is average or good enough for the stipulations then the rates are much lower. In such a market, the most competitive rate is about 18 percent, but if you have stable employment, your credit ratings won’t play such a critical role in determining the amount of loan you get offered, and the rates might go as low as 10 percent.

It’s imperative you realize a lot of other factors influence the average interest rates for auto loans, and these include:


The age of the car

In comparison to second-hand vehicles, new cars have lower interest rates. They might even go as low as 10%. For one reason or another most individuals always presume they have poor credit scores that can’t add much value their car loan applications. Due to this, they apply for a couple of thousand dollars thinking creditors will feel comfortable with a risk associated with a small loan amount. You ought to know a car worth such a small sum of money is not a reliable vehicle plus the maintenance cost will make you dig deeper into your pockets. Just sit down with the lender and explain the kind of predicament you’ve found yourself in because they are human beings too and they know how tough the economy is at the moment. You might get offered a loan at friendly interest rates.


The place you make the car purchase

Today’s financiers in the market are always cautious when lending. For an individual looking to buy a car privately might find it hard to get a loan. It’s not impossible though because not everyone shares the same reservations. The interest rates for cars bought privately for people with bad credit scores are high due to the additional risks that are present. A dealer will offer you a three-month statutory warranty which is unavailable in the case of a private purchase.


The Loan To Value Ratio (LVR)

This ratio is the primary focus of all financiers. What it tells you is that you can’t apply for more than 150% of the car’s retail value. All lenders work by the market’s guidelines on how much cars should get sold. For instance, if the vehicle you want is worth 10,000 dollars and you buy it at 13,000 dollars, then it has a loan to value ratio of 130%. Most used-car dealers bank on bad credit scores and sell cars to individuals at much higher values knowing very well that these people have limited options. So remember to always get pre-approved first before visiting any dealership.



Once the lender has established you have a stable career and living situation, he or she is more likely to offer you a car loan at a lower interest rate. But if you’ve had several jobs in a year then chances of you getting a loan decreases, and if you’re lucky to secure one, the rates will be so high. Try and stay in one place for an extended period so that you can try to convince the financier to provide the loan based on the stability of your living situation.


Boost your credit score before applying for an auto loan to save thousands of dollars you’ll spend paying the interest rates during the loan period. As you budget for a car, contemplate about the score and the likely amount you’ll pay to settle the rates. Do your homework and ensure the dealer isn’t reaping you off by charging you more than the car’s worth. Approach a lender with honesty because they always want to do business with you and the interest rates will be based on the risk they have on you not paying back.

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