How Much Extra Interest Will You Pay on a Car Loan with Bad Credit?
How Much Extra Interest Will You Pay on a Car Loan with Bad Credit?
Posted on March 3, 2025
Your auto loan interest rate is largely determined by your credit score. Lower borrowing costs are the outcome of a lower score, whereas higher scores frequently translate into lower interest rates. You can make wise financial decisions if you understand how this operates.
Why Are Interest Rates Higher for People with Bad Credit?
Risk is evaluated by lenders before granting loans. Lenders view you as a high-risk borrower if your credit history indicates late payments, excessive debt, or unstable finances. Higher interest rates are charged to reduce this risk and guarantee that they continue to make money even in the event of default.
The Financial Impact of High Interest Rates
Excellent credit holders may be able to get auto loans with interest rates as low as 3% to 4%. However, those with lower credit scores might be subject to rates of 10% to 20% or higher. For instance, over five years, a high interest rate on a $30,000* auto loans could result in thousands of dollars in additional payments compared to a lower rate.
The Impact of Loan Conditions on Interest Costs
Extending the loan term may reduce monthly payments, but it also increases the total amount of interest paid over time. Since bad credit often leads to higher rates, choosing a long-term loan further amplifies costs. Borrowers should weigh the trade-offs carefully before opting for an extended repayment period.
Strategies to Reduce Interest Rates
There are several ways to lower the interest rate on a car loan. Making a larger down payment reduces the loan amount, decreasing the lender’s risk. Another option is applying with a co-signer who has a strong credit profile. Additionally, comparing rates from multiple lenders can help secure the most competitive financing terms.
The Benefits of Refinancing
Borrowers who initially accept a high-interest loan are not necessarily locked into that rate for the full term. If financial circumstances improve, refinancing can help lower interest rates and overall loan costs. Demonstrating a consistent payment history and improving credit scores over time can lead to better loan opportunities.
Drive Now, Pay Smart—Let’s Get You Approved!
A low credit score does not prevent individuals from obtaining a car loan, but it does increase the cost of borrowing. By implementing strategic financial planning, such as improving credit scores, making substantial down payments, and exploring refinancing options, borrowers can minimize interest expenses. When considering vehicle financing options, Bennett Dunlop Outlet provides guidance and support to help customers make the best financial choices.
*All pricing is based on Ontario MSRP and does not include taxes and fees. Dealer pricing may differ. Prices are subject to change at any time without notice.