How Can A High-Interest Car Loan Rebuild Credit?

How Can A High-Interest Car Loan Rebuild Credit?

One of the most important numbers in your life will be your credit score. While this may appear like an all-too-human invention, your credit score is something that affects your ability to take on debt that is increasingly necessary for making major purchases in your life. If you want to get a mortgage to purchase a home or take out a car loan to acquire a new or used vehicle, then you will need to have a credit score that reflects your trustworthiness as a borrower.

If you currently find yourself in a bad credit situation where you cannot find a lender to supply you with a car loan or any form of credit, then you need to take action to address the root of the issue. Even if you can find a lender who will be willing to offer you car loans with your current bad credit score, you will likely be unsatisfied with the high-interest rates that you will be required to pay on this borrowing.

Fortunately, there are many ways that you can begin the process of improving your credit score through credit repair and working your way towards better financial health. One of these ways is through taking out a high-interest car loan. While it may seem counterintuitive that taking on more debt will assist you in boosting your financial health, it is a proven means of slowly boosting your credit score to allow you to have better borrowing options in the future.

Let’s look a little more closely at how the process works and what steps you need to take in order to use a high-interest car loan to help kickstart your credit repair journey.


Determine Where You Are Starting From 

The first step that you need to take in order to effectively begin the process is determining where you are starting from. Bad credit scores are not all the same. Determining how bad your credit score is will help you to have a better idea of how drastically you need to act.

To determine your credit score, get in touch with your national credit bureau. They will provide you with your credit report and score. This score is usually composed of your payment history (whether or not you have paid your bills and loan repayments on time in the past), your credit utilization rate (the proportion of your outstanding debts to your potential credit), the length of your credit history, loans that you have recently applied for, and variation in the forms of credit that you have used (that is, it is advantageous to have experience in dealing with different types of credit beyond simply using a credit card).

Once you know what your credit score is, you can determine the most appropriate course of action with regards to credit repair. Even with bad credit, you may be able to approach some lenders who will be willing to offer you a high-interest car loan. If you are presented with this opportunity, you should consider taking it.


High-Interest Car Loans And Your Credit Score 

Ultimately, you need to start proving that you are responsible with your debt repayments in order to boost your credit score. The only way to do that is to take out some form of debt. However, with a bad credit score, it may be hard to find any attractive options aside from a high-interest car loan.

Unlike credit card debt which usually features a minimal monthly payment (though high-interest rates that accrue rapidly over time), car loans require that you make a fixed payment each month. Whereas credit card debt allows you to take out more and more debt (depending on your total credit limit and depending on your financial needs), car loans are also fixed at a certain amount that has been negotiated at the time when you took out the loan.

These features make a high-interest car loan a great opportunity for performing credit repair sooner rather than later.


Make Your Payments On Time 

Since the fixed amount of repaying a car loan needs to be paid each month, and since your payment history is an important factor that goes into compiling your credit score, simply making sure to pay your car loan bill each month will improve your credit score. If you struggle with meeting your financial obligations, however, this can be easier said than done.

To meet your payments each month, it is worthwhile to start building good financial habits. Make sure that when you are considering a high-interest loan from any provider that you take the time to calculate what your average monthly payment will be. This will help you to budget for this regular expense and factor it into your overall household expenses.

If you have trouble staying organized and remembering to pay your bills simply due to a lack of awareness, then be sure to make reminders for yourself on your cell phone or calendar. This is an easy fix to make and it will work wonders for keeping your credit score moving in a positive direction.


Pay Off The Car Loan As Soon As Possible 

If you can manage it during some months, it is worthwhile to pay even more than the required amount on your car loan – especially if you have bad credit. This will allow you to pay off your car loan faster and avoid much of the extra cost added on by the high interest rate. It will allow you to reduce the pressure on your household finances while also boosting your credit score at the same time. Lenders appreciate when borrowers have a history of conscientiously repaying their debts. Going above and beyond to highlight your financial prudence will certainly be reflected in your credit score; it’s a key aspect of any comprehensive credit repair plan.

It is also a good idea to get your credit utilization rate below 30% as soon as you can. Financial advisors recommend that you usually should not exceed this amount if you want to maintain a credit score that will work in your favour. If you make sure to pay your loan back before it is due, then you will be able to speed up the process and reach this milestone quickly.


Ignore The Appeal Of Grace Periods

Some individuals with bad credit scores who have taken out a high-interest car loan may be attracted to using the “grace period” which is sometimes included in the repayment terms of a loan. This provides borrowers with extensions on making payments without accruing more interest charges. While this might help you balance the books in the short-term, it will do very little to repair your credit.

Using grace periods merely highlights to lenders that you are not a responsible person when it comes to borrowing money. This is why you need to take the process of loan repayment seriously and avoid taking the easy route (even when the task is difficult). 

Somebody driving a car with a wooden dashboard.

One of the aspects of a high-interest car loan that may give some individuals pause is the fact that it is, in fact, a high-interest car loan. You may reasonably wonder how adding more to the total cost of a loan will make financial sense if someone is already struggling to make ends meet as it stands.

This is a valid point and it is important to enter into the process of taking out a high-interest car loan for the purposes of improving bad credit with both eyes open. With full awareness of the situation that you are putting yourself in, you will be better able to appreciate the seriousness of the task of repayment at hand.

One great strategy for making a high-interest rate car loan work for you in the best possible way is to make as large of a down payment as you can afford on your car. With a large down payment, you can avoid borrowing unnecessary funds and stick to taking out a smaller amount with a reliable loan provider. This way – even if the loan has a high-interest rate attached to it – the interest rate will only be applied to a much smaller principal amount.

Naturally, making a large down payment requires access to funds that many with bad credit likely will not have. Down payments require diligent saving habits over a long period of time; yet, these same habits will be invaluable as you work towards improving your overall financial health. While it is always difficult to develop new habits – especially as they pertain to money – it is an optimal strategy to save as much as you can each month (before looking for a car loan) in order to lower the overall cost of the loan that you will ultimately have to repay. 

Saving does not have to be difficult. If you have a psychological aversion to saving or if you find the temptation to make spontaneous purchases overwhelming, then you can automate the process to make it easier on yourself. Many banks and employers can adjust your accounts to automatically deposit a certain proportion of your income into a savings account each period. This way, you can forget about making the conscious decision to save and still build up a sufficient down payment in good time.


Shop For The Best High-Interest Rate Car Loan 

Somebody holding a credit card and using a computer.






After highlighting the potential of a high-interest rate car loan for rebuilding your bad credit, it is worthwhile to also highlight the importance of working with a reputable lender throughout the process. While many credit providers are legitimate and simply interested in receiving a fair return for their services, some lenders are predatory or even fraudulent and take advantage of the vulnerability of those in a bad financial situation.

Even with bad credit, you should not sign a car loan agreement that you cannot hope to ever repay when looking at the situation objectively. Make sure that you do your due diligence when going over the fine print of a loan contract and be sure to ask questions of your lender if there is any point that seems unclear to you. If your prospective lender seems evasive or suspicious, then it is likely worth it to consider other options. Even if you are in an impossible situation and need to rebuild your credit, taking a risk with an unscrupulous lender will often leave you in even worse financial shape.



While high-interest car loans are great for helping those with bad credit start down a path to improved financial health, the road is difficult and filled with potential obstacles. Be sure to do plenty of research and discover more about each stage of the process as time goes on. Once you have managed to secure a car loan and pay it off, you will be many steps closer to achieving whatever financial goals you have for your future. 

If you’re in the market for a car loan but your credit score isn’t quite what you’d like it to be, get in touch with our team here at We consider every application we receive equally, independent of the score at the top of the form, and we’d love to talk about how we could help you out.

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