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When you’re dealing with bad credit, getting the lowest possible interest rate is essential to keeping your car loan affordable. The last State of the Automotive Finance Market Report, by Experian, shows that interest rates are rising.
One way to fight rising interest rates is to improve your credit, and we can show you how.
Rising interest rates on auto loans
In the first quarter of 2021, interest rates were still falling year over year, but that trend appears to have taken a turn. In the second quarter, interest rates climbed nearly half a percent for borrowers with near-prime credit, while subprime borrowers saw nearly a percentage point rise, pushing the average interest for this level at 11.03%. Large subprime borrowers saw their interest rates rise just over half a percent, taking them to 14.59% on average.
Experian figures show fewer subprime loans are made
According to Experian State of the automotive financing market for the second quarter of 2021, subprime loans fell to near record levels, accounting for only about 17.18% of total financing in the last quarter.
This number is the total combined funding that has gone to borrowers in the subprime and deep subprime categories. Consumer loans with near prime credit accounted for 17.95% of all new loans in the last quarter.
Credit Repair Tips to Combat Rising Rates
As loans to borrowers with less than perfect credit are increasingly difficult to obtain, improving your credit as much as possible is a great way to help you qualify for the financing you need. . And, if you improve your credit score enough, you may be able to benefit from better interest rates than you had on previous auto loans.
Here are four quick tips to improve your credit so you can get the lowest interest rate possible:
- Pay all your bills on time and in full. Payment history is the biggest part of your credit score, so if you can do it, you might start to see improvement sooner.
- Don’t overspend. If you have credit cards that typically carry a balance, be sure to keep it to a minimum. Your credit starts to decline once your credit utilization rate reaches 30%. A good rule of thumb is to only put in plastic what you can afford in cash. This way, you can be sure you have enough money to pay off your monthly credit card statement in full, instead of paying the minimum owed and accumulating more interest charges.
- Become an authorized user on someone’s credit card. When you do, you benefit from their good credit score. Remember, shared accounts go both ways when it comes to credit score. So if one side starts to slip, both of your credit scores go down.
- Make sure you get credit for the bills you pay. Some payments you make automatically, such as streaming services, utilities, and even rent, can help boost your credit score if they are reported to the credit bureaus.
Do you know where you are?
Knowing where your credit score is is an important step in getting the car loan you need and knowing what to prepare for. There are many ways to get your credit reports and scores for free, including your bank or credit union, your credit card company, or an online credit monitoring service.
Until April 2022, you can take advantage of a free service offered by Experian, Equifax, and TransUnion. They are partnering with the federal government to www.annualcreditreport.com to bring you your credit reports every week, for free. You are normally entitled to one free credit report per year from each of the three national credit bureaus, but this has been increased due to the need for Americans to monitor their credit in light of the pandemic.
Once you know what’s on your credit reports and where your credit score is, you can see the areas you need to work on to increase your credit. Experian groups consumers into five credit score levels: super prime, 781-850; first, 661-780; close to the first, 601-660; subprime, 501-600; and deep subprime, 300-500.
Ready for your next car loan?
If you’re ready to find your next car loan, the good news is that car loans are also a great way to improve your credit. Subprime lenders work with borrowers who have less than perfect credit. You might not get the lowest interest rate possible, but there are steps you can take to make sure you’re getting the lowest possible interest rate by following our tips and working with the right lender. .
Here has Auto Express Credit, we also want to help you. We know how stressful the car buying process can be, so we want to help you narrow down your search for a dealership that works on special financing. Let us point you in the right direction by connecting you with a dealer registered with lenders who can work with you.
It’s fast, free and without any obligation. Simply complete our car loan application form and we’ll get to work connecting you with a dealership.
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