Are car loan payments more expensive if you have bad credit or no credit?

Answered by Car Loans Expert Jim on December 29, 2020

I have no credit since I'm only 18, and my older brother has bad credit because he hasn't managed his finances well. If we get car loans, will our payments be higher?

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Car Loans Expert

Good question. The short answer is, yes.

The conventional wisdom is that no credit is better than bad credit. Think of having no credit as a blank wall and having bad credit as a wall with graffiti on it. The first wall is a blank canvas, so it’s easier to transform it into the positive image you want. The second wall, because of the mess, needs to be cleaned up or painted over before a more pleasing image can replace the graffiti.

Still, the no-credit and bad-credit borrowers face similar problems: Higher rates, tougher qualifying standards, and a greater possibility of being denied a loan.

The bottom line: Bad-credit or no-credit borrowers have a statistically higher likelihood of being unable to pay back the loan. Lenders do what they can to lower their risk if they decide to approve a borrower like this. This means they charge these higher-risk individuals more for the privilege of borrowing from them.

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