Financing a car? Your interest rate can make or break your monthly budget. A lower rate means smaller payments and less money spent over time, while a high rate can add thousands to the total cost of your vehicle. But what determines your interest rate, and how can you secure the best deal?
Lenders set auto loan rates based on factors like your credit score, loan term, and the type of vehicle you’re financing. The better your credit, the lower your interest rate is likely to be. But even if your credit isn’t perfect, there are ways to improve your rate and save money.
Let’s break down what affects car loan interest rates in 2025 and what you can do to get the best financing possible.
Average Car Loan Interest Rates by Credit Score
Your credit score plays a big role in determining the interest rate you’ll receive on a car loan. Lenders use it to assess your reliability in repaying the loan. Generally, a higher credit score translates to a lower interest rate, while a lower score can lead to higher rates.
Here’s a breakdown of average auto loan rates for both new and used cars based on credit score ranges:
| Credit Score Range | Average APR (New Car) | Average APR (Used Car) |
|---|---|---|
| 781-850 (Super Prime) | 5.25% | 7.13% |
| 661-780 (Prime) | 6.87% | 9.36% |
| 601-660 (Near Prime) | 9.83% | 13.92% |
| 501-600 (Subprime) | 13.18% | 18.86% |
| Below 500 (Deep Subprime) | 15.77% | 21.55% |
Source: Experian’s State of the Automotive Finance Market report, Q2 2024.
As shown, used car loans typically come with higher interest rates than new car loans. This difference is because used vehicles often present a higher risk to lenders due to potential maintenance issues and depreciation factors.
Note: These rates are averages, and actual rates can vary based on the lender, repayment period, and individual financial profiles.
Factors That Impact Your Auto Loan Interest Rate
When you’re looking to finance a car, several key factors influence the interest rate you’ll be offered. Understanding these can help you secure a more favorable loan.
Credit Score
Your credit score is a major factor in determining your auto loan interest rate. Lenders view higher scores as an indication of reliability, often leading to lower interest rates. Conversely, lower scores may result in higher rates due to perceived risk.
Loan Term
The length of your loan affects the annual percentage rate (APR) lenders offer. Shorter terms usually come with lower rates but higher monthly payments. Longer terms might offer lower monthly payments but often at higher interest rates, increasing the total cost over time.
Down Payment
Making a larger down payment reduces the amount you need to borrow, which can lower your interest rate. A significant upfront payment decreases the lender’s risk, potentially leading to better loan terms.
New vs. Used Car
Interest rates differ between new and used vehicles. New car loans often have better rates because the vehicles are less likely to have issues and depreciate more predictably. Used cars, while cheaper upfront, may come with higher rates due to potential maintenance concerns and unpredictable depreciation.
Type of Lender
Where you obtain your loan matters. Banks, credit unions, and dealership financing each offer different rates and terms. Credit unions often provide competitive rates to their members, while dealerships might have promotional offers. It’s wise to compare options to find the best rate for your situation.
Economic Conditions
The broader economy plays a role in interest rates. Factors like inflation and changes to the Federal Funds rate, set by the Federal Reserve, influence lending rates. For instance, if the Federal Reserve raises its benchmark rate to combat inflation, car loan rates might increase as a result. Staying informed about economic trends can help you anticipate changes in loan rates.
By considering these factors and how they apply to your financial situation, you can make informed decisions and potentially secure a more favorable auto loan.
How to Get the Best Auto Loan Rate
Securing a lower interest rate on your car loan can save you thousands over time. Here are the best strategies to get the lowest possible rate.
Improve Your Credit Score
Your credit score plays a major role in determining your interest rate. The higher your score, the lower your rate is likely to be. To boost your credit:
- Pay down debt: Reducing outstanding balances lowers your credit utilization, which can improve your credit score.
- Make on-time payments: Your payment history is one of the biggest factors affecting your credit. Setting up automatic payments can help avoid missed due dates.
- Check for errors: Reviewing your credit report regularly can help you spot mistakes or fraudulent accounts that may be hurting your credit score. If you find errors, dispute them with the credit bureau that reported the mistake. Removing inaccurate negative marks can improve your score and help you qualify for a better interest rate.
Shop Around for Lenders
Not all lenders offer the same rates, so getting the best auto loan is essential. Consider:
- Banks: Traditional lenders may offer competitive rates, especially if you have an existing relationship.
- Credit unions: These member-based institutions often provide lower interest rates and better terms.
- Online lenders: Digital platforms may have lower operating costs, allowing them to offer competitive rates.
Consider a Shorter Loan Term
While longer loan terms come with lower monthly payments, they often mean paying more in interest over time. Choosing a shorter repayment schedule can:
- Lower your interest rate: Lenders typically offer better rates for shorter-term loans.
- Reduce total interest paid: Paying off the loan faster means less interest accrues over time.
Increase Your Down Payment
The more you pay upfront, the less you need to borrow, which can lead to better loan terms.
- Lower interest rates: A larger down payment reduces the lender’s risk, potentially qualifying you for a lower rate.
- Smaller monthly payments: Borrowing less means lower monthly costs and less paid in total interest.
Get Preapproved Before Visiting a Dealer
Getting preapproved for a loan before shopping for a car can give you a strong advantage.
- Know your budget: Preapproval gives you a clear idea of how much you can borrow and what your payments will be.
- Stronger negotiating power: Dealers are more likely to take you seriously and may be more willing to offer better terms.
- Faster buying process: With financing already in place, you can focus on choosing the right car without dealership pressure.
Using these strategies can help you secure a lower interest rate and make your auto loan more affordable in the long run.
Refinancing a Car Loan to Lower Your Interest Rate
Refinancing your car loan can be a smart move if you want to lower your interest rate, reduce your monthly payments, or pay off your loan faster. Here’s when refinancing makes sense and what to watch for.
When Refinancing Makes Sense
- Improved credit score: If your credit score has gone up since you first took out the loan, you may qualify for a lower interest rate. This can reduce both your car loan payment and the total interest paid over the life of the loan.
- Lower market rates: If interest rates have dropped since you got your loan, refinancing can help you take advantage of the new, lower rates.
- Need for lower monthly payments: If your budget is tight, refinancing to a longer loan term can reduce your car payment. However, this may increase the total amount of interest paid over time.
Benefits of Refinancing
- Reduced interest rates: A lower rate means paying less interest overall.
- Lower monthly payments: Lowering your interest rate or extending your repayment period can make your payments more manageable.
- Faster loan payoff: Refinancing into a shorter repayment period with a lower interest rate can help you get debt-free sooner.
What to Watch For
- Fees: Some lenders charge application or origination fees. Make sure the savings from refinancing outweigh any upfront costs.
- Extended loan terms: While a longer term can lower your car loan payment, it often means paying more interest in the long run. Consider whether stretching out the loan makes sense for your financial situation.
- Lender conditions: Each lender has different requirements for refinancing. Compare multiple offers to find the best deal.
Refinancing can be a great tool to save money, but it’s important to run the numbers and ensure that the benefits outweigh the costs. If you’re upside-down on your auto loan, meaning you owe more than the car is worth, refinancing may not be an option. However, if your loan balance is lower than or close to the car’s current value and you meet the lender’s criteria, refinancing could help you secure a better rate and save money.
Tools to Compare and Calculate Car Loan Rates
Finding the best auto loan interest rate starts with knowing your numbers. The right tools can help you estimate payments, compare lender rates, and monitor your credit score to get the best possible financing.
Online Loan Calculators
Before applying for a car loan, it’s helpful to get an estimate of your car loan payments. An auto loan calculator allows you to input key details like the loan amount, interest rate, and term length to see how different factors affect your payments.
Use our Car Loan Payment Calculator to quickly estimate your monthly payment and total loan cost. This can help you set a budget before you start shopping for a vehicle.
Rate Comparison Sites
Not all lenders offer the same interest rates, so comparing multiple loan offers is one of the best ways to find the lowest rate. Many websites allow you to enter your credit score and loan details to see offers from banks, credit unions, and online lenders in one place.
Sites like Auto Credit Express act as a marketplace, gathering loan offers from various lenders based on the details you provide. This makes it easier to compare interest rates, loan terms, and eligibility requirements without having to apply with multiple lenders individually.
Credit Report Monitoring
Your credit history plays a huge role in the car loan interest rate you qualify for, so staying on top of your credit is essential. Monitoring your credit report can help you:
- Catch errors that could be hurting your score.
- See where you stand before applying for a loan.
- Track improvements if you’re working on raising your score.
Many credit monitoring services provide alerts for major changes in your credit profile, which can help you take action before applying for financing.
Using these tools can help you secure the best auto loan rate possible, whether you’re buying a new car or refinancing your current loan.
Final Thoughts
Getting the best auto loan rate comes down to preparation. Knowing where you stand with your credit, comparing lender offers, and using the right tools can help you secure a lower rate and save money over the life of your loan. Whether you’re financing a new car, buying used, or considering refinancing, small improvements—like raising your credit score or increasing your down payment—can make a big difference.
Take the time to shop around, run the numbers, and get preapproved before heading to the dealership. A little effort upfront can mean lower payments and less paid in interest, keeping more money in your pocket for the road ahead.
Frequently Asked Questions
What is the current average interest rate on a car loan?
Auto loan interest rates fluctuate based on economic conditions and lender policies. As of early 2025, the average interest rate is around 7.5% for new cars and 11.8% for used cars, though your actual rate will depend on your credit score, duration of your loan, and lender.
Can I get a car loan with bad credit?
Yes, but expect to pay a higher interest rate. Some lenders specialize in bad credit auto loans, but they may have stricter terms or or require more money upfront. Checking your credit report for errors, paying off debts, and exploring online lenders can improve your chances of securing better financing.
See also: How to Buy a Car with Bad Credit
What interest rate can I get with a low credit score?
Borrowers with credit scores below 600 typically see rates between 13% and 22% for new car loans and 17% to 25% for used car loans. If your credit is in this range, improving your score before applying or considering a larger down payment can help lower your rate.
Which lenders offer the lowest car loan rates?
Banks, credit unions, and online lenders all compete for borrowers, so rates vary. Credit unions tend to offer lower car loan rates, while online lenders can provide quick approvals. Shopping around and getting preapproved is the best way to find the lowest rate available to you.
Does having a cosigner help lower my interest rate?
Yes, a cosigner with good credit can help you qualify for a lower interest rate and better loan terms. However, they will be equally responsible for the loan. If you miss payments, it could negatively impact both your credit and theirs.
