What is a good APR for a car loan? It depends on your credit score.


When shopping for a new car (or for yourself), one of your first considerations is probably how you’re going to pay. If an auto loan is in your future, it is worth doing your research on the types of interest rates that are available to you.

Your annual percentage rate, or APR, can vary widely, but the most important factor is your credit score. You’ll want to check your credit score before you begin the process – there are many free tools to check your credit score online. If your credit score is low, you can pay a little interest. If possible, waiting to buy while you work to improve your credit could save you a lot of money.

The average interest rate for auto loans is very different depending on your credit score. Credit reporting company Experian collects data on auto loan interest rates and calculates average auto loan interest rates for new and used vehicle purchases across five credit levels. Here are the average interest rates of borrowers in each credit category received in the fourth quarter of 2020 for new and used auto loans.

Average interest rate on new car loans

Average interest rate on used car loans

As the Experian data show, the difference in interest rates between a borrower with good credit and a borrower with poor credit could reach 11 percentage points on average.

The interest rate on your auto loan will be determined by several factors:

  • Your credit score and history. The better your credit rating, the less interest you will pay. Auto loans are a borrowing situation where they can make a big difference – according to Experian data for the fourth quarter of 2020, the average borrower with a credit score below 500 will pay 11.5 percentage points more than a buyer with a credit score above 780.
  • Whether you are buying a new or used car. Thanks to manufacturer incentives and a higher resale value, new car purchases are cheaper to finance than used cars. The exact rate depends on credit scores, but financing a used car is on average 1.15 to 6.1 percentage points more expensive than financing a new car, according to data from Experian .
  • Duration of your loan in months. Longer loans often have higher interest rates because they are considered to be of higher risk.
  • The make, model and year of the car you are purchasing. Some cars have better resale values ​​than others, and that will play a role.
  • Your deposit. Making a down payment on the purchase of your vehicle will influence your car’s loan-to-value ratio, calculated by dividing the amount you owe on the loan by the car’s depreciated value.

The car itself shouldn’t be the only thing you’re looking for – buy your car loan. Get pre-approvals from multiple lenders and compare them to find the best deal for you.

Good places to start looking include banks or locals

credit unions
where you already have a relationship. There are also a variety of other auto loan lenders and banks online – check out Insider’s list of the best auto loans of 2020 to get started.

Start receiving prequalification offers up to a month before you want to buy. Depending on the lender, these approvals are generally valid for 30 to 60 days. Once you start submitting pre-approval requests, you have two weeks to submit as many as you want and have them show up as one request on your credit report.

The best way to find a low interest rate on a car loan is to shop around and compare several pre-approval offers from several different lenders. If you are still not impressed with your offers, improving your credit score could be of great help. Additionally, try to reduce the amount you will need to finance by saving more money for a down payment, or shortening your loan term by paying more per month.

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