Do You Pay More Interest on Your Car Loan if You Have a Bad Credit Score?

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People can refinance their auto loans when they have low credit scores. Lenders will agree to provide loans for people with low credit scores, but they cannot offer these borrowers the most advantageous terms. Lenders consult applicants’ credit scores to determine whether or not the applicants are creditworthy. In other words, they are determining whether or not there is a high probability that the borrower will default on the loan.

When an applicant has low credit scores, lenders decide that they are at a high risk of not repaying the loan. Therefore, if they decide to approve someone with a low credit score for a loan, they will offer the borrower a higher interest rate. Therefore, people with bad credit scores pay more interest on their car loans in most cases.

Refinancing with the Same Lender

When someone has bad credit, it may interest them to refinance a car loan with the same lender. However, this may not be an option for a variety of reasons. For example, every lender doesn’t offer a refinancing option.

According to Lantern Credit by SoFi, “Although a lender does offer refinancing, this is not necessarily the best option for everyone.” Borrowers may be able to procure more advantageous fees, loan terms and rates from other lenders. Although people can refinance their loans with the same lenders, the better thing to do is inquire into other lenders’ rates and terms.

How Do You Find the Best Interest Rates and Terms with Bad Credit?

Finding the best terms and interest rates requires that people do the following:

Learn Your Credit Scores

Before people enter a car dealership, they must learn their credit scores. If there are any errors on their credit reports, they need to dispute them. Inaccurate items can unnecessarily lower a person’s credit scores and disqualify them for a loan with the best terms.

If consumers can wait to apply for a new car loan, they can wait until their credit scores improve. After this happens, they will be offered the best rates because their credit scores may be excellent. Sometimes, people need new vehicles, and they don’t have time to wait. In that case, they can ask a friend or a family member to co-sign a loan with them. A co-signer with good credit will help someone with bad credit obtain better terms and a lower interest rate.

Take Time to Save for a Down Payment

Waiting to apply for an auto loan will also give consumers time to save for a down payment. A down payment gives people with low credit scores a much better chance of qualifying for a loan. When consumers don’t offer a down payment, the lender is taking on more of the risk, and offering a down payment lowers it. In addition to that, a down payment allows consumers to borrow less money, so they pay less interest over the life of the loan.

Whether you have good or bad credit, Lantern Credit wants to help you find a lender. Contact us today.