How To Get an Auto Loan At the Best Interest Rate

1) Know Your Credit Score (1 of 10)

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1) Know Your Credit Score (1 of 10)

Are you 100% sure you need to apply for a bad credit auto loan, or is there a chance your credit is actually okay? Check your credit score, commonly referred to as a FICO score, before you head to a bad credit car lender so you know exactly how bad your financial situation is at the moment. You might be surprised to learn that your FICO score is 620 or higher, or you might discover a few accounts that were never marked as current.

Check your credit score several weeks before you plan to apply for a bad credit auto loan. If there are any debts that don’t belong to you or bills that were never updated, you can dispute these items on your credit report. You can request one free credit report per year, per federal law, or order a free trial of online credit monitoring to get your FICO (most large banks use FICO, but some credit unions with use Experian to asses your credit score.

Currently, Car Loan Lenders (both large banks and credit unions) classify your credit score as “poor” if you have a score below 620. You can expect to pay an interest rate of 13% or more if your score is below 620, and may even be declined if you can’t show proof of income (2 years of tax returns or consistent pay stubs).

Your debt-to-income ratio also plays a large role in your interest rate.  If your debt to income ratio is high,  (eg: have a credit card with a 10K limit, but have a 9K+ balance), you’re going to be classified as a higher risk loan because you have either revolving debt, or are maxing out your unsecured debt.  If you score is 620-680, it considered fair-to-good and you could expect to pay roughly 6-10%. 680-720 is considered good and you can expect to pay roughly 4-7%

Anything over 720 will get you the lowest Car Loan interest rate possible. It depends on the car year, make, model, the amount of money down, but typically you’ll pay roughly 1.8-4% and the bank or credit union won’t even require proof of income.

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