Shoppers look for all sorts of things when they're in the market for a new car—safety features, fuel efficiency, design, comfort and so on. Another key consideration is finding a good interest rate on an auto loan. But the best interest rate you can get on a car loan can depend on a variety of factors, including your credit history, financial situation and vehicle price tag.
What Is a Good Auto Loan Interest Rate?
What's considered a "good" interest rate on a car loan can vary by individual. Put simply, the best rate available to one auto loan borrower may be far higher than the rates offered to someone else with better credit and other qualifying factors. The best rate for you is dependant on many factors, such as:
- Your credit score
- Your credit history
- Your income
- Your debts
- The size of the loan
- The term of the loan (such as 48 or 60 months)
- The amount of the down payment
- The kind of vehicle you're buying
- The age of the car (new or used)
The interest rate of an auto loan matters because it affects how much money you'll wind up borrowing and how much your monthly payments will be.
When you're shopping for a car loan, find out what the APR (annual percentage rate) would be. Shown as a percentage, the APR reflects the full cost of borrowing money, including interest and fees.
The average interest rate for a new vehicle rose to 6.58% in the first quarter (Q1) of 2023, up from 4.10% during the same period in 2022, according to Experian's latest State of the Automotive Finance Market Report. Meanwhile, the average interest rate for a used vehicle jumped to 11.17% during Q1 2023, up from 8.67% in the same period a year earlier.
The following table shows average interest rates for new and used vehicles across five credit score categories. Credit scores included in this chart use the VantageScore® scoring model, with 850 being the highest and 300 being the lowest.
As you'll see, the interest rates go up as the credit scores go down.
| Average Auto Loan Interest Rate by Credit Score Range | ||
|---|---|---|
| Credit Score Range | Average Interest Rate, New Cars | Average Interest Rate, Used Cars |
| 781-850 | 5.18% | 6.79% |
| 661-780 | 6.40% | 8.75% |
| 601-660 | 8.86% | 13.28% |
| 501-600 | 11.53% | 18.55% |
| 300-500 | 14.08% | 21.32% |
Source: Experian State of the Automotive Finance Market Report, Q1 2023
How Do You Find a Good Rate on an Auto Loan?
No matter what your credit score is, you want to nail down the best rate you can for a car loan, right? Here are six tips for accomplishing that:
- Shop around. Compare rates among at least three to five lenders, such as banks, credit unions, and automakers.
- Make a bigger down payment. This can lead to a lower interest rate.
- Buy a new car instead of a used car. Experian data shows average rates for new cars are lower than those for used cars.
- Pick a shorter payoff period. If you go with a 48-month loan instead of a 60-month loan, for instance, you might end up with a lower interest rate. Keep in mind, though, that this should lead to a higher monthly loan payment.
- Negotiate with a lender for a lower APR. You may be limited in the interest rates you're offered, but the lender may have leeway if you're able to work something out with them.
- Boost your credit score. If you've got time, work on reducing your debt and catching up with past-due payments could lift your credit score and increase your odds of getting a lower interest rate.
As Experian data indicates, bumping up your credit score can earn you a much better rate on an auto loan. So, pushing up your credit score by lowering the amount of debt you're carrying, for instance, should shave a hefty sum of money off the amount you'll owe on a car loan. It's worth noting, though, that it can take 30 to 60 days to see a positive change in your credit score.
Keep in mind that your credit score shouldn't take a big hit if you shop for a car loan within, say, a 14-day period. That's because several credit inquiries appearing on your credit report within a relatively short shopping period for an auto loan are treated as a single inquiry by credit scoring models. A so-called hard inquiry on your credit report can temporarily ding your credit score by a few points.
How to Get a Better Rate on an Auto Loan
Comparing rates among several lenders is one of the simplest ways to land the best interest rate for a car loan, along with making a bigger down payment and shortening the payoff period.
Of course, don't overlook your credit score, which is a big part of this equation. Increasing your credit score might increase your odds of getting a good interest rate. Experian lets you check your FICO® Score☉ for free.