Here's the Average Interest Rate on a Car Loan With a 501-600 Credit Score

Car loans remain more expensive than a year ago. Car owners with below-average credit scores may struggle to find affordable financing for new cars.

FICO, the biggest credit scoring company, considers 500-600 scores below average. Consider credit-building strategies if your score is in this range. Folks with scores above 670 get much better deals on car loans, saving over $100 per month.

Interest rates for low credit scores

The average interest rate for poor credit on new and used cars is about 17% and 18.5%, respectively, according to myFICO data on interest rates by credit score.

Example: Say a customer with a 500-589 score wants to take out a $35,000, 60-month loan. They would pay about $869 monthly for a new car and slightly more for a used vehicle.

Borrowers with high credit scores can expect to pay less. For example, a customer with a 700 credit score could expect to pay only $710 monthly for a new car. That's why raising your credit score is essential. It can significantly lower the cost of borrowing.

How to raise a credit score fast

Typically, raising a credit score takes time. If increasing your credit score is climbing a mountain, then the mountain is tall, and a marathon is in order. Reaching the peak can take years. But climbers can speed things up by employing the following fast credit-building strategies:

• Double-check your credit reports. FICO isn't perfect; sometimes, it makes mistakes that lower your credit score. You can check your credit report for free at AnnualCreditReport.com. Report mistakes to your credit bureau. Once fixed, your score may improve.
• Pay down debt. FICO rewards you for paying off your loan balances. If you have racked up a credit card balance, consider paying it down to lower your credit score quickly. The less you owe, the better your score. Experts recommend using at most 30% of your available credit.
• Request a credit limit increase to raise your credit score. A higher credit limit shrinks your credit utilization ratio. Say you borrow $500 with a card. Boosting your credit limit from $1,000 to $2,000 would drop your credit utilization from 50% to 25%, potentially improving your score.

Other ways to make buying a car cheaper

Sometimes, strategies to build credit fast aren't enough -- you need a car now, and your score is still in the 500-600 range. Borrowing may be too difficult or too expensive. Fortunately, there are tools you can use to make the journey up Credit Mountain more affordable right now:

• You can trade in a used vehicle. Some dealerships will subtract the trade-in value of your current car from a new one; essentially, the dealer is paying you for your old vehicle. But dealers typically pay less than what you could get from a private sale.
• You can extend your loan payback period to 72 months. You'll pay more interest over a longer payback period, but your monthly payments will be lower. It's worth considering if you need extra breathing room to make mortgage payments.
• You can get a cosigner on a loan to borrow another person's credit score. A cosigner with excellent credit improves your chances of snagging a loan, and they may lower your interest rate. However, not all lenders let borrowers cosign, and your cosigner will be on the hook for missed payments.

Where do I find a loan with poor credit?

You can take out a loan from a dealership or bank. Banks may offer better deals than dealerships. Plus, banks can pre-approve loans, simplifying the car-buying process. The best personal loans for bad credit may give borrowers lower interest rates.

Tools are handy but work best when paired with a good credit score. The sooner you embark upon credit-building strategies, the sooner you'll reap the rewards of the best auto loans, car insurance, and more. It's never too late to start climbing.