Average Interest Rate On A Car Loan

What Is The Average Interest Rate On A Car Loan?

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What Is The Average Interest Rate On A Car Loan?

Average Interest Rate On A Car Loan, Buying a car, whether new or used, is a significant investment. There are  many factors to take into account, such as the type of car you choose, your down payment, the value of your trade-in vehicle, and the amount of the auto loan that you can comfortably afford.

Your credit score is one of the main deciding factors when it comes to car loan interest rates. Your interest rate will be lower the higher your credit score is. Lenders can tell you’re responsible with credit if you have an excellent credit score because you won’t have any trouble making auto loan payments. Here are some additional details about auto loan interest rates.

Average Car Loan Interest Rate

According to Experian’s State of the Auto Finance Market report for the fourth quarter of 2021, the average interest rate on auto loans for new cars was 3.86%. The typical interest rate for used cars was 8.21%.

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There are a few things that affect how much interest you’ll pay on auto loans, such as:

Credit rating: One of the most crucial components in determining interest rates is your credit score.

Loan term:  Auto loans can have terms of 24 to 84 months. While your monthly payment will be lower with a longer term loan, your interest rate is probably going to be higher.

Type of vehicle: Since used cars have already started to lose value, interest rates for newer cars may be lower than those for used cars.

Down payment: The amount of money you need to borrow will be lowered if you have enough cash on hand to utilize as a down payment. You can also use the money you receive in exchange for your car as a down payment. Less borrowing will result in lower interest costs throughout the course of the loan.

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How to use average car loan interest rates

Even though you won’t know your exact rate until after you apply for a car loan and receive lender offers, you’ll at least have a general idea of it. For loans with longer terms than those with shorter terms, you should prepare to pay more in interest. Compare rates from various lenders to make sure you’re getting the best deal.

If you already have a car loan and your interest rate is higher than the average rate for your credit score, you might be able to refinance for a lower interest rate and a smaller monthly payment. Apply to refinance your auto loan with a number of lenders to compare rates.

Average Car Loan Interest Rate by Credit Score

Even if customers with bad credit are still eligible for vehicle loans, their interest rates will be higher than those of borrowers with good credit.

Average Used Car Loan Interest Rate by Credit Score

Even if you borrow less money for a vehicle loan, you can still pay more in interest because secondhand autos often have higher interest rates than new cars.

CREDIT SCORE AVERAGE INTEREST RATE
781-850 3.61%
661-780 5.38%
601-660 9.80%
501-600 15.96%
300-500 19.87%
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What is the highest interest rate on a car loan by law?

According to the law, a lender can only charge a vehicle loan with an APR of no more than roughly 16%, but some lenders get away with charging 25% or even more. Your credit score and your preference for a new or used automobile will affect the annual percentage rate (APR) for your auto loan. A used car will have a higher APR than a new one.

Is 6 percent interest rate good for a car?

Depending on your credit score, income, and debt-to-income ratio, a 6% interest rate on a car loan may be beneficial or bad for you. As of September 2021, the average interest rate for a 60-month auto loan is 3.81%. In light of this, a 6% interest rate is high—especially given that your credit score is 700.

What is a good interest rate on a used car?

The State of the Automotive Finance Market report from Experian for the fourth quarter of 2022 states that the average auto loan interest rate is 6.07% for new automobiles and 10.26% for used cars. You’ll have the best chance of getting a rate below 5% for new autos if your credit score is above 780.

Frequently asked questions

What interest rate is too high for car?

Interest rates on auto loans shouldn’t go over 25%. However, because auto loan rates vary, what one person may consider to be an excessive amount of interest on a car loan may actually be a relatively cheap rate for another. Because your credit score plays a big role in determining your car loan APR, it can range from 0% to 25% or more.

What is a good interest rate for a loan?

A good personal loan interest rate ranges from 2.49% to 9%. The best personal loans offer APRs as low as 2.49% for the most creditworthy customers, whereas the average APR for a two-year personal loan from a bank is 9.46%, according to the Federal Reserve.

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What is the interest rate on a car loan with a 620 credit score?

For comparison, as of November 2022, the typical borrower with prime credit (a FICO score of 720 or better) received an APR of 5.34% on a 60-month loan for a new vehicle. The typical APR was 11.76% for a credit score in the 620–659 range.

Conclusion

Average auto loan interest rates by credit score might help you get an idea of what rate to expect from a lender. If you’re in the market for a new or new-to-you vehicle.

Rates for auto loans are expressed as annual percentage rates, or APRs, and depend on a number of variables. Including your credit score, debt load, and income.

The rate you receive will most certainly be influenced by your credit score, though. Because lenders believe you are less likely to fail on the loan. Your vehicle loan interest rate will likely be lower the higher your credit score.

Average Interest Rate On A Car Loan

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