A bad credit auto loan is simply a regular auto loan with adjustments based on your credit. Usually, the biggest difference between regular auto loans and bad credit auto loans is that the APR is higher on a bad credit auto loan.
What is APR? The annual percentage rate, or APR, is the cost of credit, including interest and fees. The higher the interest rate, the higher the APR and the more you’re paying for the loan.
For example, someone with bad credit or “deep subprime” credit would pay $12,693 in interest, while someone with excellent or “superprime” credit would only pay $2,723 for the same five-year $20,000 used car loan. Check out the chart for more.
Category | Credit Score Range | Used Car Average Loan Rate | Interest Paid |
Deep Subprime | 300 – 500 | 19.62% | $12,693 |
Subprime | 501 – 600 | 16.78% | $10,649 |
Nonprime | 601 – 660 | 10.91% | $6,641 |
Prime | 661 – 780 | 6.38% | $3,753 |
Superprime | 781 – 850 | 4.69% | $2,723 |
Compare those costs with the costs of buying a new $20,000 car. In both examples, we’re basing costs on a five-year auto loan plus 10% in tax, title and registration fees with no down payment or trade-in vehicle.
Category | Score Range | New car Average Loan Rate | Interest Paid |
Deep Subprime | 300 – 500 | 14.88% | $9,320 |
Subprime | 501 – 600 | 12.17% | $7,476 |
Nonprime | 601 – 660 | 7.91% | $4,708 |
Prime | 661 – 780 | 5.01% | $2,916 |
Superprime | 781 – 850 | 4.19% | $2,423 |
Source: Experian State of the Automotive Finance Market Q4 2018.
Should you look at new or used cars? While APRs tend to be lower for new cars, beware that new cars are usually much more expensive and may require a down payment. Overall, you would probably pay more for a new car than a used car, even if your APR is higher for a used car loan.
You’re aware of the difference between good and bad credit car loans, you know how to shop around for the best deal and you have some options of what to do if you aren’t approved right away. With that information, it could be time to get shopping.