Understanding Interest Rates for Bad Credit Car Loans

By Angela Monroe - May 19, 2022

Interest Rates for Bad Credit Car Loans

Did you know? Interest rates for bad credit car loans are generally higher than regular loans for a few reasons. Plus, it can be tough getting approved in the first place if you have bad credit.

In this article, we’ll discuss the typical interest rates for bad credit car loans, as well as some tips on how you can get a better interest rate.

Why are interest rates for bad credit car loans high when you have bad credit

Having bad credit means that your credit report displays information that lenders (eg. banks) view as indicating you might struggle with repaying a new loan in the future.

Some of this information on a credit report can include:

  • Missed repayments on previous loans
  • Outstanding debts (eg. overdue bills)
  • Credit enquiries (when you’ve applied for a loan) 

Bad credit can cost you hundreds or even thousands of dollars throughout your lifetime, and it’s simply because you will need to pay a higher interest rate. With a bad credit profile, also known as a low credit score, you’ll be dealing with higher interest rates, which means you’ll be spending a lot of extra money every month.

The question is, why?


People with bad credit are charged with higher interest rates because lenders see them as a higher risk of defaulting on repayments. They charge a higher interest rate to protect themselves from risk.

Lenders are very careful about who they lend money to. If you have bad credit, they will impose a higher interest rate. On the other hand, having excellent credit will allow you to enjoy easier access to finance and lower interest rates.

You’ll also have more choices of lenders and more will agree to lending you money.

Looking at interest rates for bad credit car loans

Interest rates for bad credit car loans can be high, however, depending on how bad your credit is, you may be entitled to a or lower rate.

A good starting point is to actually find out your credit score (for free). Knowing this crucial information can help you make the right choice for your circumstances.

If you have bad credit, rates could vary from 10 to 20%, up to the maximum advertised rate. If you can boost your credit score before you apply for bad credit car loans, you can end up saving up to thousands of dollars over the life of the loan.

If your credit history isn’t great, fix it!

Interest rates for bad credit car loans depend on several factors such as the following:

Age of the car you’re buying

Buying a brand new car may entitle you to a rate lower than 10%. However, most people often apply for bad credit car loans of only a few thousand dollars to buy a secondhand car, since they think this is the limit to what they can borrow.

Generally, older used vehicles attract higher interest rates.


If you have stable employment and address history, a lender is more likely to provide you with a car loan.

However, your chances will decrease if you frequently switch jobs every three to four months. The same goes for the premise you’re currently living in. If you have been living at the same address for more than a year or two, lenders are more likely to approve your loan.

Basically, a long history of working for the same employer while living at the same address is more favourable.

going to work

How you can get a better interest rate for bad credit car loans

For a better interest rate, check out tips:

  • Try to get stable employment and residence. As mentioned earlier, having a stable source of income and a stable residence will increase the likelihood of your loan approval. Moreover, it will can decrease the interest rates you’re required to pay
  • Settle your financial obligations on time
  • Try to avoid debt as much as possible
  • Close any credit cards and pay off any loans that you have to increase your capacity to repay a car loan
  • Avoid taking on more scheduled payments like gym memberships and subscriptions to streaming services

Once you’re able to increase your credit score, you can then apply for bad credit car loans with a much lower interest rate.

The difference between lower and higher interest rates

To understand the difference between a lower and higher rate, here’s an example:

Applicant A
Credit score of 720, stable job, Applicant A owns a house where they have lived for more than two years, and pays off their debts as soon as possible.

Applicant B
Credit score of 350, full-time artist with no stable income and relies only on Centrelink for his income payments.

Both of them apply for a car loan and decide to buy a $15,000 car on a 60-month loan.

  • Applicant A enjoys a 5% interest rate with repayments of $283.07 per month.
  • Applicant B has a 20% interest rate with repayments of $397.41 per month.

After 60 months, Applicant B will have paid $6,860.40 more for the same car.

Even though Applicant B has a bad credit profile, they are still able to get approved for a bad credit car loan. As a result, they’ll end up paying more since his interest rate is a lot higher.

At the end of the day

Interest rates for bad credit car loans can be a tough pill to swallow. Fortunately, if you have bad credit, you can take advantage of lower interest rates through our bad credit car loans. 

Often, credit history alone won’t tell the entire story, and that’s why we’re here to help.

Get in touch with the team to discuss your options, you might be surprised by just how many you have!

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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