If you need financing to buy a new or used car, the interest rate that you’re offered will affect how much your loan will cost you – and ultimately how much your car will cost you. You need to be in a strong place financially to qualify for the most competitive interest rates that lenders advertise – and that’s not the only factor to consider when shopping around for the best deal on car loan interest rates.
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Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
The average buyer can expect to pay anywhere between 4.5% to 6% interest on their car loan, depending on whether the car is new or used and whether the interest rate is fixed or variable.
The following example shows the amount of interest you could end up paying for a brand new $36,000 car assuming a loan term of 7 years and a down payment of $3,600.
Interest Rate (hypothetical)
Monthly interest payment
Total interest paid
15% (but some lenders may not approve a score under 600)
Note: the information below is just an example and does not take into account all of the factors lenders consider when evaluating a loan application. Actual lenders may charge different interest rates.
Where can I find a car loan with a competitive interest rate?
Comparing car loan interest rates offered by different banks, credit unions and online lenders is critical to finding the deal that’s best for you.
Banks or credit unions. Since you have an established relationship with your bank already, it might be easier to get approved for a loan, even if you don’t have the best credit. Banks and credit unions also tend to offer the most competitive rates.
Online lenders. Some online lenders may be willing to loan money to people with average or poor credit, even if they can’t get approval from their bank — though they may not get the lowest rate available. Online lenders also tend to be the quickest to approve loans and disburse funds.
Dealerships. Local car dealers are often willing to work with borrowers of all credit ratings. But because many dealerships offer financing through an external lender, dealers may inflate interest rates in order to make a profit.
Compare car loan interest rates from online lenders
8 tips to get the best car loan interest rates
Finding the best car loan interest rates involve doing research and comparing lenders. The following tips can help you find a low interest rate on your next car loan – and save you thousands of dollars in the long run.
Before you start comparing car loan interest rates, understand your credit score and how it impacts your finances. If you have multiple accounts open and have a high debt-to-income ratio (you owe a lot more than you have), then your application will look less favourable to lenders. On the other hand, if you have a clean record and an excellent score, you’ll want to be on the lookout for deals with especially low interest rates. Go into the car-buying process with your eyes open and a realistic goal in mind.
Some lenders allow you to pre-qualify for a loan in order to find out the interest rate and loan term that you’ll be offered. Pre-qualifying doesn’t damage your credit score, as usually lenders just conduct a “soft pull” instead of a “hard pull” which can lower your score by a few points. You can therefore apply for pre-approval from multiple lenders without committing to multiple loans and damaging your credit score. This makes it easier to compare rates and find a loan that’s suitable for your needs.
When you compare your online and traditional loan options ahead of time, you’ll have an idea of the interest rates that you’re eligible for. This means you’ll have a solid number to negotiate a lower APR when you visit a dealership that offers financing.
Many buyers visit the dealership with an idea of how much they can pay each month. While this is great for your budget, it can lead to salespeople inflating the price of your car, usually by offering you a longer loan term — which mean you’ll be paying more in interest. Your focus should be on the overall cost of the vehicle, that is, the sale price as well as the total amount of money you’ll have paid throughout the entire term of your loan. Once you have this number, it’s much easier to determine what term length is best so you can handle monthly repayments.
If you decide to visit a car dealership without knowing what interest rates you’re eligible for, you’ll need to negotiate your interest and the price of the car. No matter how good your credit score is, you likely won’t be offered the lowest interest rate right off the bat. Dealerships are hoping you don’t question your rate, so come prepared knowing your credit score and the average interest rates currently offered on the car loan market.
After researching, price shopping and comparing lenders, it might be tempting to take the first good interest rate that comes your way. Stay patient. Since your interest rate isn’t the only thing that impacts the final price of your car, spend the time determining how term length and vehicle cost affect your budget. Most lenders will offer you a few days to consider your options — you won’t be wasting time if you decide to take a moment to get your thoughts in order. And you might save a lot of money in doing so.
Like most loans, car loan contracts are notorious for their difficult to understand terminology. You should know how interest is calculated on your loan and any potential fees you might have to pay. You’ll also want to confirm that your loan isn’t conditional when you visit a dealer. Conditional means “subject to change,” meaning, your loan isn’t finalized when you drive off the lot. Your terms could change, which could leave you with a worse interest rate on a loan that you thought you had gotten a good deal on.
Lenders may require that poor credit applicants apply with a cosigner, because the cosigner acts as a guarantee for the loan — if you’re unable to make your payments, your cosigner is responsible. This not only lowers the risk for the lender, but it can also result in a lower interest rate for you.
Even applicants with decent credit can benefit from having a cosigner or joint application. The lender considers the credit and income of both parties when reviewing your application, giving you a better chance of being approved for a more affordable rate. In order for this to happen, your cosigner has to at least meet, if not exceed, the lender’s eligibility criteria.
How do lenders come up with my rate?
A few different factors help lenders determine the car loan interest rates you’ll be offered. The more well-rounded your application, the better your chances of scoring a low rate. Although there are many factors that may play a role in your interest rate, these are the four main points lenders consider when reviewing your application:
Credit score. Those with higher scores generally have access to lower rates, so improving your credit history is an important part of getting a low interest rate on your car loan.
Income. Lenders consider your income because it reflects your ability to pay back the loan. They also want to see a low debt-to-income ratio to make sure you can afford your loan.
Loan term. The loan term impacts the interest rate that you’re offered – as well as how much interest you’ll pay over the life of the loan. A lender could offer you a lower interest rate on a longer loan term, but this doesn’t mean you’ll save money: you’ll pay more interest on a longer loan term.
Vehicle. Your vehicle’s make and model can also play a role car loan rates, especially if you’re buying a used car. Since it’s possible that your car will be used as collateral to secure the loan, lenders often charge higher interest for cars that are of poorer quality and are more likely to break down.
To get the best car loan rates, you’ll need to have an excellent credit score, a sufficient income that allows you to easily manage your loan repayments and a vehicle that is viewed favourably by lenders. Getting a low interest rate allows you to save money over the course of your car loan – and ultimately lowers the total price that you pay for your car.
If you already have a car loan with a high interest rate and think you could qualify for a lower one, you may want to consider auto refinancing.
Frequently asked questions about car loan interest rates
It’s possible, but it depends on your credit and the automaker. Often, you’ll need nearly perfect credit to qualify, and it’s usually only available for cars of certain makes and models. Agreeing to a 0% APR car loan may also mean foregoing other offers or promotions like a manufacturer’s rebate. Ultimately, if you qualify, you’ll want to crunch the numbers to make sure it’s the best deal for you and you’ll want to carefully read the terms and conditions.
Not necessarily. While a longer term might lower your interest rate and decrease your monthly payments, you’ll likely pay more in interest overall. Carefully weigh your ability to make monthly payments with the final cost of your car to determine the best term length for you.
The longer your loan term, the lower your monthly payment. However, it makes the total cost higher. For example, if you borrow $15,000 for a used car and your lender offers you a 10.5% interest rate, your monthly payments and total interest can vary greatly.
Total interest paid
As you can see, your monthly payments are lower the longer you borrow, but you’ll end up paying far more in interest over the life of your loan.
Kellye Guinan is a writer and editor with Finder and has years of experience in academic writing and research. Between her passion for books and her love of language, she works on creating stories and volunteering her time on worthy causes. She lives in the woods and likes to find new bug friends in between reading just a little too much nonfiction.
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