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  • Alan Hamzaoui

How Bad Credit Affects Your Car Loan




In general, a credit score of 740 or higher gets you the lowest interest rate on an auto loan. If you have perfect credit, you might be able to score a car loan as low as 0%. If you have a poor credit score, you might be looking at interest rates up to 20% or higher. That can add up to paying thousands of dollars more for a car loan with bad credit versus good credit.

Lenders want confidence that borrowers are likely to pay the loan back on time and in full, which is why people with good to great credit get the best interest rates. They pose a low risk based on their credit history, and lenders feel assured these borrowers will pay their debt back responsibly.

Consumers with bad credit, on the other hand, are perceived as higher risks by lenders. Things like missed payments, defaulted loans and a high debt-to-income ratio are red flags for lenders, and they charge a high interest rate to compensate for the increased lending risk.

In addition to reviewing your credit score, lenders also look at other factors not included in your credit report, including:

  • Your income

  • What type of loan you are trying to get

  • Your work history

  • How long you have worked at your current job



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