Used Car Loans and Financing for 2025

Used Car Loan Financing Trends

Just 36.5% of used car buyers used an auto loan to finance their purchase in Q4 of 2024, according to Experian data. For comparison, roughly 80% of new car buyers financed their purchase during the same period.

The average used car loan interest rate dropped slightly from 11.97% in 2023 to 11.62% in 2024, though that remains higher than the 10.36% average in 2022.

The 11.62% average is also nearly double the 6.35% average rate for new car loans. There are a couple of reasons for this:

• New cars qualify for lower rates: Because new cars are less likely to break down, they're less risky of an investment for auto lenders. As a result, they typically qualify for lower interest rates.
• Higher credit scores: The average credit score for a new car loan is 755, while the average for used loans is 691. While that's not a significant difference, it can still affect the interest rate you pay.

Where to Get a Used Car Loan

There are several different ways you can get financing for a used car purchase. Here's a quick summary of some of the most common options:

• Banks: A wide range of national, regional and community banks offer auto loans. This option may be worth considering if you work with a bank and want to keep all of your finances under one proverbial roof. However, banks may charge higher interest rates compared to credit unions.
• Credit unions: Credit unions can often offer better interest rates than banks. However, you need to be a member of your local credit union to qualify, which is an extra hurdle for some car buyers.
• Captive finance lenders: Captive lenders are the financing divisions of car manufacturers. If you're buying a certified pre-owned vehicle from a franchise dealer, you may be eligible for a loan with a captive finance company. These lenders may offer lower interest rates and other incentives, but they may also have shorter repayment terms, leading to higher payments.
• Finance companies: "Finance company" may refer to any non-bank auto lender. This includes online lenders that specialize in auto loans and may offer less stringent eligibility requirements and possibly lower interest rates because they don't have the same overhead costs as a brick-and-mortar bank or credit union.
• Buy here, pay here dealers: Buy here, pay here (BHPH) financing involves borrowing directly from a dealer. It's a common choice because it often doesn't require a credit check. However, BHPH loans can come with exorbitant interest rates, and dealers may be unwilling to report your on-time payments to the credit bureaus.

Used Car Loan Origination Share by Lender Type and Dealer Type

Used Car Loan Interest Rates by Credit Score

Economic conditions are just one of many factors that lenders consider when determining the interest rates they offer.

One of the more significant factors they'll look at is your credit score, which provides a snapshot of your overall credit profile. The lower a person's credit score, the less statistically likely they are to repay a debt on time. As a result, lenders charge higher interest rates to compensate for the added risk.

Improving your credit score can help you qualify for more loan options and more favorable credit terms. Here's a look at the average car loan interest rates by credit score:

Source: Experian data as of Q4 2024; scores calculated using VantageScore 4.0

Who Buys a Used Car?

Buyers with lower credit scores are more likely to buy a used car than people with good credit, according to the latest data from Experian. Roughly 92% of people with deep subprime credit financed their used car purchases, while just 45% of people with super prime credit did so.

This is likely due to the fact that used cars are less expensive, even after accounting for higher interest rates.

Share of Used Vehicle Financing by Credit Score

Used Car Loan Financing Interest Rate Trends

While used car loan interest rates are higher than they were a few years ago, car buyers may expect to get some relief soon. Experts say the Federal Reserve is likely to slash its federal funds rate twice in 2025. This rate directly influences the prime rate, which is a benchmark many auto lenders use to set their rates.

Of course, economic projections are just that. Keeping up with the latest news about the economy and interest rates can help you get a better sense of market trends.

Average Auto Loan Rates by Year

Tips for Getting a Used Car Loan

If you're thinking about buying a used car, paying cash can save you money on interest charges and other loan-related costs.

However, if you can't afford to pay for a vehicle outright, or you'd prefer to keep your savings for other important financial goals, here are some tips to help you get a used car loan:

• Evaluate your budget. Take a look at your income and expenses to get a feel for how much car you can afford. You can then use a reverse car loan calculator to determine your target sales price. Knowing this figure can make it easier to negotiate with dealers, who may try to get you to focus on the monthly payment rather than the sales price.
• Improve your credit score. Used car loan rates are already higher than new auto loan rates, so it's even more important to look good on an application. Register with Experian to get free access to your Experian credit report and FICO^® Score^☉, which can help you assess your credit health and determine which steps you can take to improve your score.
• Shop around. While it may be tempting to have a dealer arrange financing for you, you may be able to get a better deal by shopping around for a loan before you head to the dealership. Getting preapproved with a handful of banks, credit unions or online lenders can help you ensure you get the best possible terms.
• Look at more than just interest rates. While you want to secure a low interest rate, it's important to also pay attention to other loan features, such as the repayment term, monthly payment and prepayment penalties. If you have bad credit, it's also critical that you make sure the lender will report your payments to the credit bureaus, so you can build your credit.
• Put more down to minimize your payment. A down payment directly reduces how much you need to borrow, lowering your monthly payment and potentially even your interest rate. Making a large down payment or trading in your current vehicle can make your new purchase more affordable.

The Bottom Line

Used car loan interest rates are relatively high right now, but they may be on a downward trend in the coming months. Regardless of market conditions, though, it's important to evaluate your financial situation and credit history to determine which steps you need to take to qualify for favorable terms on an auto loan.

Throughout the car buying process, it's important to regularly monitor your credit to track your progress and address potential issues as they arise. If you can't afford to wait until your credit is better to buy a car, your efforts may still be rewarded later on in the form of lower rates on an auto refinance loan.