What Is The Average Car Loan Interest Rate? (2024)

Buying a vehicle is a big purchase, whether it’s a new or used car. There are so many things to consider, including the type of car you get, your down payment, trade-in value and how much you can afford to borrow for an auto loan.

When it comes to car loan interest rates, your credit score is one of the biggest determining factors. The higher your credit score, the lower your interest rate will be. An excellent credit score tells lenders you’re responsible with credit and won’t have a problem making payments on your auto loan. Here’s what else you should know about interest rates for auto loans.

Average Car Loan Interest Rate

The average car loan interest rate was 3.86% for new cars, according to Experian’s State of the Auto Finance Market report in the fourth quarter 2021. For used cars, the average interest rate was 8.21%.

When it comes to auto loans, there are a few factors that go into how much you’ll pay in interest including:

• Credit score: Your credit score is one of the most important factors in interest rate calculations.
• Loan term: Terms can range from 24 to 84 month auto loans. With a longer term, your monthly payment will be lower, but your interest rate will likely be higher than with a shorter term loan.
• Type of vehicle: Interest rates for newer cars might be less compared to used cars since pre-owned vehicles have already begun to depreciate.
• Down payment: Having enough money on hand to use as a down payment will reduce how much money you need to borrow. If you’re trading in your car, that can also be used as a down payment. The less you need to borrow, the less you’ll pay in interest over the total life of the loan.

Related: What Is A Good APR For A Car?

Average Car Loan Interest Rate by Credit Score

While it’s possible for borrowers with bad credit to qualify for an auto loan, they’ll pay more in interest compared to someone with excellent credit.

Example auto loan payment

If you don’t have great credit, you can expect to have a higher interest rate and pay more in total interest over the total life of your auto loan than someone with great or excellent credit.

We’ll walk through an example using an auto loan calculator. Let’s say you’re applying for a new car loan and you need to finance $25,000 over five years (or 60 months) and put no money down. Here’s an example estimate of what you would pay with an excellent credit score compared to a bad score:

Not only would you have a lower monthly payment with an excellent credit score, you’d also save more than $7,100 in interest over the life of the loan.

Average Used Car Loan Interest Rate by Credit Score

Since used cars tend to have higher interest rates compared to new cars, you might pay more in interest, even if you borrow less in an auto loan.

How to Get the Best Auto Loan Rate

Securing the lowest interest rate available means you’ll avoid paying more than you have to on top of what you originally borrowed. But getting the lowest interest rate can take some time and work. Here are six things you can do to help you get a better auto loan rate.

1. Find a car you can afford

Instead of finding the car you want, try to find one that fits reasonably into your budget. Use an auto loan calculator to determine a comfortable monthly payment, but give yourself some wiggle room, too.

Remember you’ll still need to pay for gas, maintenance, car insurance and other expenses. Once you know how much car you can afford, browse vehicles within that price point.

2. Improve your credit

To get a lower auto loan rate, make sure your credit score is in the best shape possible. You can access your credit report for free on AnnualCreditReport.com and see if there are any marks or errors you can remove or resolve. If you have any outstanding debt that’s keeping your credit score down, be sure to pay it off. You should also try to pay down your credit cards to lower your credit utilization ratio.

After improving what you can, it still might take a few weeks to reflect on your credit score. But it pays to be patient and hold off on getting a new car until your score is updated.

3. Save up for a down payment

While the safest car-buying option is to pay in cash, that’s not always an option for everyone. It’s possible to get a car loan without a down payment, but having one will help keep monthly payments low—and cut down on how much you need to borrow.

You could also consider trading in your current car to lower your auto loan payments.

4. Shop around

Do your homework. Check out different dealerships to see which ones have the best deals on vehicles, along with any promotional offers going on. Many dealerships offer the best deals around holidays like Memorial Day, Independence Day and Labor Day.

So, if you can hold off until then to do your car shopping, you might be able to get a vehicle for much cheaper—whether it’s a lower interest rate, vehicle price or both.

5. Get preapproved

The dealership doesn’t need to be the place where you get an auto loan, however. While many offer financing, you’re limiting yourself to one lender. Instead, shop around different banks, credit unions and online lenders to see which ones have the best interest rates and terms for you.

Consider getting preapproved for an auto loan before heading to the dealership. That way, with financing in hand, you’re confident you got the best rate you could by comparing many different offers first.

6. Apply with a co-signer

If you’re struggling to get approved for the lowest possible rate, consider finding a co-signer for help. This can be a parent, spouse or someone else you trust to help you qualify. Having a co-signer means someone else takes out the loan with you. With their strong credit history, you get to take advantage of the lowest interest rates and best repayment terms available.

But keep in mind that a co-signer is responsible for the loan just as you are. So if you fail to make payments or fall behind, their credit score will take a hit just as yours will. Both of you will have a hard time qualifying for borrowing opportunities in the future if this happens, so make sure you’re both prepared for this responsibility.

Related: Best Auto Loan Rates Of April 2024