Yahoo Autos What is the Average Car Loan Interest Rate?
When you shop for a car, one of the biggest challenges can be finding a loan you feel comfortable with. Lots of factors impact what type of financing you can get and your rates, like your credit score.
When you know the average car loan interest rates for your credit score, you can determine what kind of annual percentage rate, or APR, you can expect. In general, you'll get a lower interest rate if you have a high credit score.
Here's what you need to know about average car loan interest rates, including how you can find a better interest rate for your situation.
What Factors Determine Your Car Loan Interest Rate?
If you want to figure out the average car loan interest rate for buyers like you, you should know which factors potential lenders will consider. Even if you already know what kind of car you want, knowing this information can help you decide if now is the best time to buy a car, or if you should wait until your financial situation improves:
Credit Score
The biggest factor in this decision is your credit score. Your credit score is a numerical value between 300 and 850 that tells a lender how reliable you are as a borrower.
If you have a score of 850, your credit history is excellent. You'd be considered a very safe borrower.
However, a score of 300 indicates that you're an extremely risky borrower. If you have a high credit score, you can expect your car loan interest rate to be quite low. If you have a low score, your interest rate will be higher.
Vehicle Type
Your lender will also consider the type of vehicle you want to buy. A new car will come with a lower interest rate, but used cars often have higher interest rates due to the rate at which cars depreciate. The make, model, and mileage of the car you're considering will also come into play.
Down Payment Amount
The money you put down on a car, as well as any cars you trade in, will reduce the amount you borrow from the lender. When you borrow less money, you'll pay less interest.
Lenders also factor in the loan-to-value ratio, which is the percentage of the car's value that you've borrowed.
When you put down a larger down payment, you borrow less of the car's value, so your interest rate may be lower.
Loan Term
The next factor is the loan term. If you opt for a longer term, like 84 months, you can count on a low monthly payment and a higher interest rate.
A short-term loan may come with higher monthly payments, but you'll pay less in interest. Most lenders give you the opportunity to pay off a loan more quickly by making payments on the principal only.
What is the Average Car Loan Interest Rate?
The average interest rate for auto loans on new cars in 2022 is 4.07%. The average interest rate on loans for used cars is 8.62%.
If you have a high credit score, you can expect your interest rate to be slightly lower than these figures. Additionally, the average loan term is currently 69.48 months for new cars and 65.73 months for used cars, according to Experian.
Average Car Loan Interest Rates Based on Credit Score
Excellent Credit (750+)
If you have excellent credit, which means you have a credit score of 750 points or higher, you're considered a low-risk borrower.
As a result, you can probably get a low interest rate on a car loan plus some additional financing incentives. Average auto loan interest rates are about 2.96% for new cars and 3.68% for used cars.
Good Credit (700-749)
If you have good credit, which is typically above 700 but below 750, you're a prime borrower.
In this case, you're likely to receive a below-average interest rate for your auto loan. You could be eligible to receive an interest rate of 4.03% on a new car and 5.53% on a used car.
Fair Credit (600-699)
If you have fair credit, your score is likely in the 600s. You may pay more to borrow money because you are slightly more risky in the eyes of a lender.
Still, your overall risk is pretty low, so you can get a decent interest rate. Non-prime lenders in this category have an average interest rate of 6.57% for new cars and 10.33% for used cars.
Poor Credit (599 and below)
If you have poor credit, your credit score is likely below 600. You can expect your lender to offer an interest rate of 9.75% to 12.84% for a new car and 16.85% to 20.43% for a used car.
These are higher interest rates because you're deemed a higher-risk borrower. Ultimately, it's more expensive to borrow money when you have poor credit.
If you have poor credit, the dealer may allow you to take the car, but the dealer might tell you that the loan is contingent or conditional.
If the lender doesn't approve of the terms the dealership offered you, you might see the interest rate increase. It's a good idea to finalize all loan details before you leave the dealership with a car.
What Does This Mean For Monthly Payments?
A low car loan rate can save you some money in the long run, especially with lower payments. Your loan payments will be much lower if you have good or excellent credit and choose a shorter term.
When you receive the conditions of your loan, you will get information about the specific payments you'll make each month.
If you're unsure of how long you want your loan term to be, spend some time thinking about the total interest you're going to pay.
While you might have significantly lower payments each month, the amount you save could be completely negated by the fact that you could be paying thousands of dollars more over the loan term.
