Securing a Good Interest Rate with Bad Credit

Many people think that having bad credit represents the end of reasonable interest rates, especially when it comes to auto loans. However, having bad credit does not necessarily preclude you from finding a car loan that not only offers reasonable terms, but also an interest rate that won’t be a burden on your finances.

Credit and Interest Rates

In most cases, the interest rate you receive on an ordinary car loan is often contingent on your credit score. Normally, if you have a FICO score of 640 to 720 or above, most lenders will take into consideration the amount of auto credit you’ve had up to this point and offer an interest rate that is largely based on your current credit score.

Unfortunately, most people who have FICO scores below 640 are not able to take advantage of ordinary car loans, which is where bad credit car loans come into play. The considerations taken into account by lenders specializing in these types of loans are bit different than those of conventional lenders:

  • Bad credit lenders look at your ability to afford a car payment by looking at your debt-to-income ratio. Most lenders will approve loans where the monthly payments are below 20% of your gross monthly income.
  • Lenders also look at the stability of your income. This includes the length of time spent at your current residence and your current place of employment.
  • Lenders will take into account your ability to pay your bills in a timely manner.

This is just a basic look into how bad credit car lenders determine the interest rate of your potential loan. As with any loan, having a relatively positive credit history insures that you receive the best interest rates.