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In a nutshell
Your credit score can significantly influence the car loan interest rate you qualify for.
- The average car loan interest rate as of the fourth quarter in 2023 was 7.18% for new cars and 11.93% for used cars.
- The higher your credit score, the lower your auto loan interest rate. However, other factors, such as the lender, the loan term and the economy can also influence your rate.
Fast funding
myAutoloan
Fast funding
myAutoloan
APR
Starting at 5.49%
Min. credit score
600
Loan amount
Starting at $5,000
Term
24 - 84 months
Average auto loan interest rates by credit score
In its most recent State of the Automotive Finance Market Report, Experian found that in Q4 2023, the average car loan interest rate on new cars was 7.18% and 11.93% for used cars.
While several factors determine auto loan interest rates, credit scores play a significant role. Here’s a breakdown of the average car loan interest rate based on credit scores.
| Credit score | Average new loan rate | Average used loan rate |
|---|---|---|
Deep subprime (300-500) | 14.78% | 21.55% |
Subprime (501-600) | 12.28% | 18.89% |
Near-prime (601-660) | 9.60% | 14.12% |
Prime (661-780) | 7.01% | 9.73% |
Super-prime (781-850) | 5.64% | 7.66% |
As you can see, the higher your credit score, the lower your auto loan interest rate will be. On average, someone with a super-prime credit score will receive an interest rate of nearly one-third that of someone with a deep subprime score.
Factors that affect auto loan interest rates
Credit scores are a key factor in determining your auto loan interest rate, but other factors can also affect it.
Credit score
Lenders will use your credit score to determine how financially responsible you are. Higher credit scores usually mean you pay your bills on time each month, keep your credit balances low and generally make smart financial choices.
Your FICO score can range anywhere from 300 to 850. Any score above 780 will generally receive the best possible interest rates. When you sign up for MyFICO, you’ll be able to continuously monitor your credit score throughout the year.
Related: Best credit monitoring services
Lender
The lender you choose can also impact the interest rate you receive. Not all lenders underwrite loans the same way. Shop around for an auto loan and compare rates from multiple lenders to see which one offers the best rates and conditions.
Loan term
Most lenders also adjust the rate based on the length of your loan. For example, a 24- or 36-month loan term will have a lower rate than an 84-month loan because you’re paying it off sooner. The longer the loan term, the greater the chances you could default at some point.
Age of vehicle
As the table above shows, lenders offer higher interest rates on used cars than on new ones. As a vehicle depreciates in value, the lender assumes more risk, which it passes along to the borrower through higher interest rates.
Down payment
Lenders will likely offer a lower interest rate if you make a sizable down payment to reduce the amount you’ll need to borrow. The more cash you put down, the less likely you are to walk away and default on the loan.
Economic conditions
The economy also influences interest rates. When the federal funds rate is high, banks incur higher borrowing costs, which are passed along to consumers. When the Fed lowers its rates, auto loan interest rates will follow.
What to know before you apply for an auto loan
Before you apply for an auto loan, it’s important to understand exactly how much you can afford. You’ll first need an idea of what interest rate you qualify for.
Most lenders will allow you to prequalify for an auto loan and perform a soft inquiry on your credit report, which won’t impact your credit score. Prequalification will help you determine how much you could borrow and the interest rate you’d receive.
Once you know the interest rate you’ll qualify for, you can use an auto loan calculator to determine your monthly loan payments.
How to get a better auto loan interest rate
If you want to get the best auto loan interest rate, there are some things you can do to help.
Improve your credit score
One of the easiest ways to get a better auto loan interest rate is to boost your credit score. To do this, make your monthly payments on time and pay off as much of your balance as you can each month. Not only will this keep your account balance low, but it will help you avoid paying interest on your credit cards.
Related: How to fix your credit score in 10 easy steps
Increase your down payment
Putting more money down reduces the amount you need to borrow. Because the lender assumes less risk, they’ll be more likely to offer you a lower interest rate.
Choose a shorter loan term
Many people like longer loan terms because they reduce your monthly car payment. However, you’ll typically pay a higher interest rate. Opting for a shorter loan term if your budget allows a higher monthly payment could result in significant interest savings over time.
Get a co-signer
If you have less-than-stellar credit, consider having a friend or family member co-sign the loan. If they have a higher credit score, this could help you receive a lower interest rate. However, if you fail to make payments, your credit score — and theirs — will take a hit.
The AP Buyline roundup
Your credit score directly impacts your auto loan interest rate. If you have a lower score, work on improving it before getting a car loan. This will help you receive the lowest possible interest rate offers.
Frequently asked questions (FAQs)
What is a good interest rate for a car loan?
The average auto loan interest rate as of Q4 2023 was 7.18% for a new car and 11.93% for a used car. However, if you have a credit score above 780, your interest rate could be several points lower than that.
Are there any fees associated with getting a car loan?
Origination fees for auto loans are often between 1% and 2% of the loan amount. When you purchase a car, you’ll also pay tax, title and registration fees.
Can I negotiate the interest rate on a car loan?
Yes, you can negotiate the interest rate just like you’d negotiate the car's sales price. If you receive multiple loan quotes, use these estimates to negotiate the rate with lenders.
Can I refinance my car loan to get a lower interest rate?
Yes, if your credit score has improved or rates have dropped since you got a car loan, you can refinance your loan and receive a lower interest rate.
How can I check my credit score before applying for a car loan?
Check your credit score from Experian, TransUnion and Equifax for free once a year by visiting annualcreditreport.com.
AP Buyline’s content is created independently of The Associated Press newsroom. Our evaluations and opinions are not influenced by our advertising relationships, but we might earn commissions from our partners’ links in this content. Learn more about our policies and terms here.
