How to Figure Out the Interest Rate on a Bad Credit Car Loan

January 14th, 2016 by

If you have bad credit, chances are you will have a harder time finding financing for a car. What you might not be expecting are the high interest rates associated with bad credit auto loans. The interest rate is what makes paying off a bad credit car loan such a financially difficult endeavor, but it isn’t impossible. Even though you might not know exactly what your monthly interest rate will be, there is still a way to get a better idea of how much it will be.

Note: There is really no way for you to know how much your interest rate on a bad credit car loan will be until you apply for financing, but you can still get an idea by using any type of car loan calculator.

Two Rates Make One

Before we jump into the calculating though, it’s important to understand there are two kinds of loans that make the total monthly rate on the car. The APR and the interest rate (or note rate), the ladder of the two being what will jack the monthly rate up if you have bad credit.


The APR is the higher of the two rates and reflects the total cost of financing for the vehicle per year. The APR also covers things like GAP insurance, protection plans, the taxes owed on the purchase, etc. Basically, anything to directly do with the purchase of the vehicle.

Note Rate

The note rate represents the cost of borrowing money per year, including fees or interest accrued. Essentially, this has to do with the loan portion of the vehicle, which is where the higher interest rate on a bad credit auto loan comes from.

In the end, these both add up to equal the total cost of what you will be paying monthly. It’s just important to understand the difference between these two monthly rates, so you know where the added expense is coming from.

How To Calculate for a Bad Credit Car Loan

First, you need to take a look at your state’s average bad credit auto loan interest rate. Since each state has a different interest rate on bad credit car loans. Some states can be around 10% and others all the way up to 19%, and figuring that out first is important.

Now, take that state’s average bad credit auto loan interest rate and plug it into an auto loan calculator. Then, create a mock price of a car you think you can afford, let’s say $15,000, and plug that into an auto loan calculator along with the length of the car loan and the sales tax.

Example: For a $16,050 car with a sales tax of 7% and a APR of 19%, your average monthly payment would be 416.35. Over 60 months you would have ended up paying $24,981 total on that car.

It’s Not Precise, But it’s Close Enough

While this might not be a direct representation of how much interest you will pay monthly on a bad credit car loan, it’s still an accurate one. Bad credit auto loans fluctuate from credit score to credit score, and you won’t know what score matches up to what monthly rate until you get approved for financing.

But, at least this way you can start preparing early. Also, the higher interest rate you put in, the more prepared you will need to be. Giving yourself incentive to save up even more, and ensuring that you are ready to pay off whatever comes your way.