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Learn How To Spot The Best Deals According To Your Financial Profile.
Taking out a loan to purchase a car is a big decision, and you want to make sure that whatever route you take will work best for your budget. One key factor in making this determination is understanding the average car loan interest rate.
When you’re shopping for a new car, finding a loan that you feel comfortable with can be a daunting task. Much like a personal loan, there are plenty of factors that will affect what type of financing is available to you, like your credit score.
Generally speaking, you’ll get a lower car loan interest rate if you have a good or excellent score. But knowing what the average car loan interest rate is for the score you have right now will give you a much better idea of what your APR will be.
Below, we’ll discuss how you can calculate the average car loan interest rate and how to find the best deals that reflect your financial situation. Read on to learn more!
What Determines A Car Loan Interest Rate?
Are you looking for a new car and considering taking out a loan to finance your purchase? If so, understanding the various factors that influence your car loan interest rate is key.
Knowing what drives these rates not only helps you find the most suitable loan product but also ensures you get the best possible deal in terms of interest charges.
Below, we’ll look at how lenders determine car loan interest rates and explain why some people pay more than others. Read on to learn all about it!
Your Credit Score
When it comes to car loans, there is one factor that strongly dictates the interest rate you receive: your credit score. A good credit score will typically get you a car loan with a lower interest rate, which can save you money in the long run when car payments are factored in.
On the other hand, a low credit score usually means you don’t qualify for the best rates available on car loans and may have to pay more each month to cover interest costs.
The Type Of Vehicle
Vehicle type plays an important role when it comes to car loan interest rates. Not only does the car you pick for your loan affect your monthly car payments, but it also affects how much interest you are paying over the duration of the car loan repayment period.
Shopping around for car loans and researching different car models can help you get a better car rate.
Being car savvy is one of the most important steps towards getting a good car loan deal – compare car features and research reasonable market values to get the best terms on your car purchase.
Your Down Payment
Having a larger down payment amount for your car loan can be key to obtaining the best interest rate. Typically, lenders view a bigger down payment as evidence of greater financial stability, meaning they are more willing to offer a better interest rate on your loan.
It also decreases the overall amount you will be borrowing, which can lead to lower payments and therefore less risk for the lender.
A larger down payment may even help you avoid additional fees and qualifying restrictions that are often applied to borrowers with smaller payments. So if you want to ensure the best possible terms for your car loan, keep an eye on your down payment amount.
The Terms Of Your Loan
The term of your loan is probably one of the most important factors that will determine your car loan interest rate. Longer loans typically come with lower monthly payments—but they’ll also mean you pay more in interest over time.
Shorter terms often come with a higher monthly payment, but they can save you thousands of dollars in the long run. When it comes to loan terms and interest rates, the key is to weigh up all the pros and cons to find out which option works best for you.
The cost difference between a 3-year or 5-year car loan could be significant; so make sure to crunch those numbers and find out what makes sense for your budget!
What Is The Average Interest Rate For A Car Loan?
The average car loan interest as of February 2023 for a new car ranges between 3.84% for people with super prime scores and 12.93% for people with a deep subprime score. Used car rates are between 3.69% for prime scores and 19.81% for deep subprime.
The higher your score is, the higher are your chances to secure a lower car loan interest rate. Furthermore, Experian says that the average loan term for new cars is 69 months, while used cars have a 65-month average.
To get a better understanding of the average car loan interest rate for each credit score, check the table below.
|CATEGORY||RANGE||USED CAR AVERAGE||NEW CAR AVERAGE|
|Super Prime||781 – 850||3.69%||3.84%|
|Prime||661 – 780||5.47%||4.90%|
|Near Prime||601 – 660||9.81%||7.25%|
|Subprime||501 – 600||15.86%||10.11%|
|Deep subprime||300 – 500||19.81%||12.93%|
So if you know where your score currently stands, you’ll have a better idea of what your car loan interest rate will be.
Where Can You Find The Best Car Loan Interest Rate?
If you’re in the market for a new car, you’ll want to ensure that you get the best deal possible when securing an auto loan, which includes finding the lowest interest rate. Fortunately, there are quite a few places where you can shop around to find great car loan interest rates.
You’ll want to start with your local bank or credit union and then check out other reputable lenders online. Researching different lenders and comparing interest rates is one of the best ways to ensure that you get the very best deal.
Shopping around can save you hundreds of dollars over the life of your loan, so it’s definitely worth your time!