Average interest rates for car loans for bad credit

When you have bad credit, you’re likely to only get an above-average interest rate on a car loan. However, being prepared is one of the keys to a successful car loan, and you can prepare by researching the average rates available to people in your credit score range.

Average interest rate for car loans for bad credit

Auto loan interest rates are primarily based on your credit score. Generally speaking, the higher your credit score, the lower the interest rate you may qualify for. The reverse is true for borrowers with lower credit scores.

However, a credit score is not the only factor that affects your interest rate. The national prime rate, the lender you work with, the vehicle you finance, the term of the loan you choose, etc., can also affect what is offered to you.

According to Experian State of the car finance market third quarter report 2021, the average bad credit car loan interest rates on used vehicles are:

Credit score range

Experian Classification

Average used car interest rate

300 – 500

deep subprime


501 – 600



601 – 660

not first


How Your Interest Rate Affects Your Car Loan

When you’re dealing with higher interest rates that come with less than good credit, it can really drive up the cost of the car you’re financing. In fact, interest accumulates daily based on the balance of your car loan. The higher the interest rate, the more interest you will pay.

Let’s look at an example of how the interest rate you qualify for affects the overall cost of your car loan. Suppose you took out a $15,000 loan with a term of 72 months (six years). Find out the total cost difference between an interest rate of 19.85% and an interest rate of 9.77:


Monthly payment

Interest paid

Total cost

Interest rate of 19.85%




Interest rate of 9.77%




In this example, we are using a loan term that is becoming increasingly popular due to the rising cost of car financing. A longer loan term reduces the monthly payment but increases the overall cost of your loan.

Since you’re likely to see these higher rates with bad credit, one way to lower the overall cost of your car loan is to go for a shorter loan term. If we assume the same $15,000 is financed but use a 60 month loan term, you save money overall by reducing interest charges. The shorter your term, the less interest you will pay.

Ways to minimize your interest charges

In addition to shortening the term of your loan, there are several other ways to save money on interest charges. Here are three suggestions:

  1. Make a deposit – Installments make a difference in the amount you pay in interest charges. When you make a down payment, you reduce your loan amount from the start, which means there is a lower balance on which interest may be charged.
  2. Stay away from the “exchange treadmill” – When you trade in a vehicle with negative equity, a lender may allow you to transfer the negative equity from your previous loan to your new one. This increases the new loan amount, leaving you with a larger loan balance on which interest may be charged. It also has the potential to keep your new car upside down in the loan longer, meaning you could face additional negative equity on your next trade-in. The cycle continues, forcing you to pay even more interest charges than necessary each time you finance a new vehicle.
  3. Pay off your loan faster – A surefire way to save money in interest charges is to reduce the amount you owe on the loan. The sooner you can pay down your auto loan balance, the more money you’ll save. There are a number of methods you can use to pay off your loan faster, including paying more when you can, splitting payments, or making payments every two weeks.

Bad credit doesn’t stand between you and a car loan

Just because you have bad credit doesn’t mean you can’t get a car loan. You should be prepared for a higher interest rate, but you can still reduce interest charges by using the strategies above.

The good news is that you can get a car loan and improve your credit score at the same time. Auto Express Credit can connect you with a local dealer who knows how to work with bad credit.

We work with a national network of specialist financing brokers who have the loan resources to finance people in unique credit situations. Fill out our free, no-obligation car loan application form, and we’ll put our expertise to work for you.

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