Here’s the Average Interest Rate on a Car Loan With a 501-600 Credit Score

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Raising your credit score to 700 can halve your interest rate on an auto loan. Find out how to make purchasing a car more affordable with a below-average credit score. 

Car loans remain more expensive than a year ago. Car owners with below-average credit scores may struggle to find affordable financing for new cars.

FICO, the biggest credit scoring company, considers 500-600 scores below average. Consider credit-building strategies if your score is in this range. Folks with scores above 670 get much better deals on car loans, saving over $100 per month.

Interest rates for low credit scores

The average interest rate for poor credit on new and used cars is about 17% and 18.5%, respectively, according to myFICO data on interest rates by credit score.

Example: Say a customer with a 500-589 score wants to take out a $35,000, 60-month loan. They would pay about $869 monthly for a new car and slightly more for a used vehicle.

Borrowers with high credit scores can expect to pay less. For example, a customer with a 700 credit score could expect to pay only $710 monthly for a new car. That’s why raising your credit score is essential. It can significantly lower the cost of borrowing.

How to raise a credit score fast

Typically, raising a credit score takes time. If increasing your credit score is climbing a mountain, then the mountain is tall, and a marathon is in order. Reaching the peak can take years. But climbers can speed things up by employing the following fast credit-building strategies:

Double-check your credit reports. FICO isn’t perfect; sometimes, it makes mistakes that lower your credit score. You can check your credit report for free at AnnualCreditReport.com. Report mistakes to your credit bureau. Once fixed, your score may improve.Pay down debt. FICO rewards you for paying off your loan balances. If you have racked up a credit card balance, consider paying it down to lower your credit score quickly. The less you owe, the better your score. Experts recommend using at most 30% of your available credit.Request a credit limit increase to raise your credit score. A higher credit limit shrinks your credit utilization ratio. Say you borrow $500 with a card. Boosting your credit limit from $1,000 to $2,000 would drop your credit utilization from 50% to 25%, potentially improving your score.

Other ways to make buying a car cheaper

Sometimes, strategies to build credit fast aren’t enough — you need a car now, and your score is still in the 500-600 range. Borrowing may be too difficult or too expensive. Fortunately, there are tools you can use to make the journey up Credit Mountain more affordable right now:

You can trade in a used vehicle. Some dealerships will subtract the trade-in value of your current car from a new one; essentially, the dealer is paying you for your old vehicle. But dealers typically pay less than what you could get from a private sale.You can extend your loan payback period to 72 months. You’ll pay more interest over a longer payback period, but your monthly payments will be lower. It’s worth considering if you need extra breathing room to make mortgage payments.You can get a cosigner on a loan to borrow another person’s credit score. A cosigner with excellent credit improves your chances of snagging a loan, and they may lower your interest rate. However, not all lenders let borrowers cosign, and your cosigner will be on the hook for missed payments.

Where do I find a loan with poor credit?

You can take out a loan from a dealership or bank. Banks may offer better deals than dealerships. Plus, banks can pre-approve loans, simplifying the car-buying process. The best personal loans for bad credit may give borrowers lower interest rates.

Tools are handy but work best when paired with a good credit score. The sooner you embark upon credit-building strategies, the sooner you’ll reap the rewards of the best auto loans, car insurance, and more. It’s never too late to start climbing.

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