How to Reduce Interest Rate on Current Car Loan With Bad Credit

You read every day about how low interest rates are. Yet the rates on your car loan are far higher. The reason might be your credit: Lenders charge higher interest rates for borrowers whose credit scores are under 740. Even with bad credit, you might be able to lower the rate on your car loan. Doing so, though, is challenging: You'll have to prove to your lender that you've suffered a financial hardship that has made paying your current car loan too difficult.

Instructions

1

Gather and make copies of the financial statements that you'll eventually send to your auto lender to prove that you gross monthly income has taken a fall thanks to a financial setback. Gather those that prove, too, that your monthly debt obligations have not fallen accordingly. These papers include your credit-card statements, other loan statements, federal income tax return and most recent paychecks.

2

Call your auto lender at the number on your current loan statement. Explain that you've recently suffered a financial hardship--it could be a job loss, illness or drop in annual income--that has made it impossible for you to pay your auto loan payments each month. Request that your lender lower your interest rate as a way to make your payments affordable.

3

Write a financial hardship letter that spells out exactly why you can no longer afford your monthly auto payments. Also include your request for a lower interest rate and lower monthly payment.

4

Mail, fax or send by e-mail your hardship letter and the copies you made in Step 1. Give your lender time to review this paperwork. Your lender will need to determine if your hardship is severe enough to warrant a reduction in your interest rate, despite your bad credit.

5

Agree to a new interest rate if your lender approves your request. Make sure that you can afford the new payment that results.