Editor's choice: Carvana
- Most credit types welcome
- 45-day preapproval
- Seven-day guarantee
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Interest rate is one of the most important factors that impacts how much you pay for a new or used car. Generally, you need strong personal finances to qualify for the most competitive rates — especially a good credit score. However, it’s not the only number to keep in mind.
The average interest rate on a new car loan is 5.15% as of September 2020. Your rate will depend on your credit score, debt-to-income (DTI) ratio and whether you’re buying a new or used car.
|Credit score||Average new car rate||Average used car rate|
|Excellent (super prime): 781 to 850||3.24%||4.08%|
|Very good (prime): 661 to 780||4.21%||6.05%|
|Good (nonprime): 601 to 660||7.14%||11.41%|
|Fair (subprime): 501 to 600||11.33%||17.78%|
|Poor (deep subprime): 300 to 500||13.97%||20.67%|
Some lenders charge higher rates for used cars because you can’t take advantage of manufacturer deals and it’s difficult to determine the actual value. Used car buyers also default at a higher rate, causing some lenders to slap in a higher APR.
LEARN MORE: How to decide between a new vs. used car
The interest rate you get can also depend on your car’s loan term, though not always. In fact, the average interest rate on both a 48- and 60-month car loan from a commercial bank in the third quarter of 2019 was 5.27%, according to the Federal Reserve.
While some lenders may charge lower rates for a longer term, others like credit unions offer higher rates on longer terms.
Finding the best car loan interest rate involves preparing and plenty of research beforehand with a potential to save thousands of dollars. These tips should get you started on your journey to scoring a low rate on your next car loan.
Lenders don’t just rely on your credit when they decide your interest rate. The more well-rounded your application, the better your chances of scoring a lower rate. Although there are other factors that may play a role, these are the four main points lenders consider when reviewing your application:
Comparing the rates at different banks, credit unions and online lenders is critical to finding the lowest one out there.
Dealership financing are often be more expensive than borrowing from a third-party lender. But there are some situations where you can get a better deal.
It’s possible, but it depends on your credit and the lender. Often, you’ll need nearly perfect credit to qualify, and it’s usually only available for certain makes and models. Agreeing to a 0% APR auto loan may also mean foregoing other offers or promotions, like say 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.
At the end of the day, you can lower the total price you pay for a new or used vehicle by ensuring you’ve found a good deal on your car loan interest rate. When shopping for a new car loan, don’t forget to do your research on each part of the process. 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 refinancing.
You won’t be able to apply for a new loan unless you’re a returning customer.
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