Auto loan rates
Auto loan rates determine how much interest you'll pay over the life of your loan. This page explains what rates mean, how they're determined, and what to expect when getting a new loan or refinancing.
What are typical auto loan rates?
Auto loan rates vary widely based on several factors. Here's a rough guide:
- Excellent credit (720+): Often 3–6% APR for new vehicles, 4–7% for used.
- Good credit (660–719): Often 5–9% APR for new vehicles, 6–11% for used.
- Fair credit (600–659): Often 9–15% APR, sometimes higher.
- Poor credit (below 600): Often 15–20%+ APR, with some lenders charging even higher.
These are rough ranges. Your actual rate depends on the lender, loan amount, vehicle age, loan-to-value ratio, and current market conditions.
What determines your rate?
Lenders consider several factors when setting your rate:
- Credit score: Usually the biggest factor. Higher scores mean lower rates because lenders see you as less risky.
- Loan amount: Larger loans sometimes get slightly better rates, but this varies by lender.
- Vehicle age: Newer vehicles typically get better rates. Many lenders won't finance vehicles older than 10 years.
- Loan-to-value (LTV): Lower LTV (more equity) can help with rates. High LTV or negative equity can increase rates or make you ineligible.
- Loan term: Shorter terms sometimes get slightly better rates, but longer terms can reduce monthly payment.
- Market rates: Broader economic conditions affect all rates. When the Federal Reserve raises rates, auto loan rates tend to rise too.
- Income and debt-to-income: Lenders want to see that you can afford the payment.
- Payment history: Past late payments or defaults can increase your rate.
Interest rate vs. APR
There's an important difference between interest rate and APR:
- Interest rate: The cost of borrowing money, expressed as a percentage. This is what you pay on the principal.
- APR (Annual Percentage Rate): Includes the interest rate plus fees and other costs, giving you a more complete picture of the loan's cost. APR is usually higher than the interest rate.
When shopping for loans, compare APR, not just interest rate. APR gives you a better sense of the true cost because it includes fees.
How to get better rates
To improve your chances of getting a better rate:
- Improve your credit score: Pay bills on time, reduce debt, and check your credit report for errors.
- Shop around: Different lenders offer different rates. Check credit unions, banks, and online lenders.
- Consider a shorter term: If you can afford it, shorter terms sometimes get slightly better rates and reduce total interest.
- Make a larger down payment: Lower LTV can help with rates and approval.
- Get pre-approved: Pre-approval lets you compare offers and negotiate from a position of knowledge.
Fixed vs. variable rates
Most auto loans have fixed rates, meaning your rate stays the same for the life of the loan. Some lenders offer variable rates, which can change over time based on market conditions.
Fixed rates are usually safer because you know what you'll pay. Variable rates might start lower but could rise later. For most people, fixed rates are the better choice.
Rate vs. total cost
A lower rate is good, but it's not the only thing that matters. A 5% rate on a 60-month loan might cost more in total interest than a 6% rate on a 48-month loan, depending on the loan amount.
Always consider total cost (principal + interest) over the life of the loan, not just the rate. A slightly higher rate on a shorter term might save you money overall.