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Auto loan interest rates are determined by several factors, including credit score. A typical auto loan rate for someone with excellent credit is around three percent, while someone with poor credit may have an interest rate closer to 10 percent—though exact percentages vary over time and in different circumstances.
When you’re looking to purchase a car, it’s helpful to understand how your credit score will affect the auto loan interest rate you’ll be offered. Generally speaking, a higher credit score will lead to a lower interest rate on your car loan. If you do apply for a car loan with poor credit, you’ll often pay significantly more in interest over the life of the loan, so taking steps to improve your credit before applying can be beneficial.
Read on to learn about the average interest rates for each credit score, other factors that affect car loan interest rates and ways to get a better auto loan rate.
What is the average auto loan rate for each credit score?
When you apply for a car loan, the financial institution offering the loan will look at your credit score to determine your score range, from deep subprime all the way up to super prime. The higher your credit score and score range, the lower your interest rate is likely to be.
Using the most recently available data from Experian, we found the average auto loan interest rate by credit score for both new and used cars. You can see all of the data in the table below.
Credit score range | New cars | Used cars |
---|---|---|
Super prime (720 or above) | 2.41% | 3.71% |
Prime (660–719) | 3.54% | 5.54% |
Near prime (620–659) | 6.64% | 10.43% |
Subprime (580–619) | 10.81% | 17.26% |
Deep subprime (579 and lower) | 14.66% | 21.07% |
On average, those with higher credit scores are offered lower interest rates on auto loans. Note that interest rates for car loans are higher for used cars than for new ones, though having a better credit score still helps keep rates low.
While credit scores are one factor that banks and credit unions use to determine the interest rate on a car loan, there are several other factors they use as well.
Factors that affect auto loan rates
Although high credit scores are strongly related to lower interest rates on car loans, there are a few other factors that determine what rate you’ll receive—and whether you’ll be offered a loan at all.
Consider the effect that the following factors may have on your auto loan before applying.
Credit score
Your credit score is the most important factor in determining the interest rate of your car loan. A higher credit score will usually lead to a lower interest rate, but it’s still possible to finance a car with bad credit.
Term length
In general, the longer term you select for your loan, the higher interest rate you’ll pay. Car loan terms are usually 24 to 72 months, and selecting a shorter term can lead to a lower rate, which reduces the interest paid over the life of the loan.
Debt-to-income ratio
Your debt-to-income ratio, which shows the relationship between how much money you bring in and how much you owe for debt payments, is another factor in getting a car loan. Banks and credit unions may not offer loans to applicants with significant debt relative to their incomes, as this may indicate they won’t be able to make payments on the loan.
Down payment
Making a substantial down payment or trading in an old vehicle can help increase your chances of approval for an auto loan and also potentially lower the rate. By reducing the overall cost of the loan, you can signal that you are more likely to make on-time payments each month.
If you’ve already looked at banks, credit unions or dealerships for a loan and could not find a suitable rate, there are steps you can take to try to get a better auto loan interest rate.
Ways to get a better auto loan interest rate
While securing an auto loan is straightforward, getting a good interest rate can be difficult, especially if you don’t already have excellent credit. Even a relatively small difference in interest rates can make a big difference in your total payment over the life of a loan, so it’s usually in your best interest to do whatever you can to get the lowest rate possible.
For example, if you take out a $15,000 auto loan for 60 months, you’ll pay just $1,373 in interest with a rate of 3.5 percent, but you’ll pay $2,821 in interest with a rate of 7 percent.
Fortunately, there are a few ways to try to get a better auto loan interest rate.
Try any or all of these ideas to see if you can find a loan with an interest rate that works for you.
Shop around for a loan
While the convenience of a dealership loan is appealing, consider looking at several different banks for a loan to get a sense of the interest rates available to you. If you are a member of a credit union, they often offer competitive interest rates to their members.
Get a cosigner
If you don’t currently have the credit score you need to get a car loan on your own, consider asking someone to cosign on the loan, which increases the chances of approval and may lower your rate. This also offers the possibility of building your credit while benefiting from better loan terms.
Make a larger down payment
When possible, save up a substantial down payment prior to purchasing a car. By reducing the amount needed for your auto loan, you reduce your risk to lenders, who may be willing to offer a lower rate in return.
Get help improving or repairing your credit
Ultimately, the best way to get a better auto loan interest rate is to improve your credit score, which involves making payments on time, keeping your credit utilization low, having a variety of accounts, maintaining accounts in good standing over time and doing other things as well. While building credit takes time and discipline, the reward is lower interest rates for loans.
In addition to improving your credit, you should also be sure to check your credit report for inaccurate information, including negative items that you believe are in error. With help from credit repair consultants like those at Lexington Law Firm, you can potentially improve your credit score through a detailed credit repair process.
Reviewed by Shana Dawson Fish, Associate Attorney at Lexington Law Firm. Written by Lexington Law.
Shana Dawson Fish is an Arizona native whose family migrated from Guyana. Shana graduated from Arizona State University in 2008 with her Bachelor’s Degree in Criminal Justice & Criminology, and in 2012 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, Shana was a Judicial Intern at the United States District Court for the District of Arizona and the Maricopa County Superior Court. In 2016, Shana was awarded a legal defense contract and represented clients as a Trial Attorney in juvenile proceedings. Shana has experience in litigating numerous trials and diligently pursuing the rights of her clients. As a Trial Attorney, Shana identified the needs of her clients and also represented debtors in bankruptcy proceedings. Shana is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.
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