3 Elements To Negotiate Beyond Interest Rate When Getting A Car Loan With Bad Credit

3 June 2018
 Categories: , Blog


One of the consequences of having a bad credit score is that you are probably going to be saddled with a higher-than-average interest rate for any loan that you take out. Interest rates for car loans are often directly tied to your credit score. However, even if you can only secure a car loan with a high-interest rate, that doesn't mean you can't negotiate the other terms of your loan.

1. Length of the Loan

The first element that you can negotiate is the length of the loan. The length of the loan has a large impact on how much you end up paying for your vehicle. The longer the loan, the more interest your loan is going to accumulate and the more the loan is going to cost you in the end.  However, the length of the loan also directly impacts your monthly car payments. The shorter the loan period, the larger your monthly loan payments are going to be.

Try to negotiate for a loan period that is long enough for your monthly payments to be affordable, but not so long that you are paying way to much interest on your loan.

2. Pre-payment Penalties

A high-interest rate for a car loan really hurts you if you take the full life of the loan to pay off the car. When you take the full length of the loan to pay off the car, you are going to pay interest on the loan the entire time. If you are able to, for example, pay off the loan in half the time, you will end up paying less money in interest on the loan over the long term.

The one thing you need to make sure of though is that a pre-payment penalty is not attached to your car loan. With a pre-payment penalty, if you pay off your loan early before the loan term expires, thus saving you money on interest, you have to pay a fee to the lender. This can often cancel out the money that you avoid paying in interest on the loan. Make sure that your loan doesn't have a pre-payment penalty attached to it.  

3. Down Payment

Finally, when you have a poor credit score, most lenders will ask you for a down payment as well. This is another element that you can negotiate as well. Lenders will generally ask you to put down a percentage of the cost of the vehicle. For example, if you are trying to purchase a vehicle that costs $10,000, they may ask you to put down 15%, or $1,500. You can negotiate the down payment to an amount that is favorable for your budget.

Just because you are saddled with a high interest rate due to a poor credit score doesn't mean that you have lost all negotiating power. You can still ask for a lower down payment and either a shorter or longer loan term, depending on your budget needs. Also, make sure that there is no pre-payment penalty added to the contract, so if you are able to, you can pay the loan off early.

For more information, contact a dealership like Marshall Chrysler Dodge Jeep Ram.