What’s a Good APR on a Car Loan?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - January 5, 2021

Your annual percentage rate (APR) is the rate at which you’re charged interest for the whole year when you borrow money. In the case of auto loans, your APR varies depending on your situation, but your credit score is typically the largest determining factor in the rate you qualify for.

What’s a Good APR on an Auto Loan?

If you can land an interest rate under 5% for a brand-new vehicle, that's generally considered a good deal. The actual rate you get for a new car, depending on your credit score, could be anywhere around 2.5% to 14% on average, according to Experian’s latest data from the third quarter of 2020.

For used vehicles, your APR can be anywhere around 4% to 20%. Typically, if you can get an interest rate under 7% for a used car, that’d likely be considered a good APR. Your APR varies depending on your credit rating, the loan term, and the type of vehicle you’re financing, and more, though.

Generally, borrowers with good credit scores have a better chance of qualifying for a lower interest rate. A poorer credit score can mean more risk for the lender, which may lead them to charge more. Very short loan terms are also more likely to have higher interest rates.

New cars tend to have lower interest rates than used vehicles because previously owned ones have a higher risk of mechanical failure due to wear and tear. The higher APR may give the lender a cushion since it can be hard to nail down an exact value for a used car.

With all of those factors in mind, it’s important to understand that your interest could vary wildly from average APRs.

Qualifying for a Lower Interest Rate on a Car Loan

The best way to ensure a lower APR is by having a good credit score. Your credit score serves as a quick way for auto lenders to evaluate your ability to repay a loan, so a better credit score can indicate that you’ve got a good history of repaying credit.

With a lower credit score, or no credit, a lender may assign you a higher interest rate. If you’d like a lower interest rate, then giving your credit score a boost can increase your odds of getting a more favorable APR.

Building a good credit score can take some time, but if a lot of time isn’t something you have, you can still do some rate shopping to look for the best deal.

Rate Shopping for a Good APR

While increasing your credit score with short notice may not be possible for every borrower, you can take the time to rate shop. Rate shopping minimizes the impact on your credit score when you’re looking for a car loan.

Rate shopping is when you apply with multiple lenders for the same type of credit in a short window, typically 14 days. When you apply with a lender, they do what’s called a “hard inquiry,” which means they request to look at your credit reports. A single hard inquiry usually drops your credit score by around five to 10 points.

But when you apply for the same type of financing with more than one lender within about two weeks, only one hard inquiry impacts your credit score. All hard pulls are reported to your credit reports, but only one lowers your credit score if done correctly.

Can I Change My Interest Rate?

If you get approved for an auto loan and get an APR that you’re not crazy about, you can look into refinancing later on. Refinancing involves replacing your car loan with another one, and the goal is usually to lower your interest rate to get a lower monthly payment.

Refinancing is usually only possible after you’ve had your auto loan for at least one year. Your credit score has to be good or has seen improvement since the start of your loan, as well. If you make all of your payments on time, and your vehicle meets the lender’s requirements, this could be the way to go. Most refinancing lenders don’t approve contracts for cars that have over 100,000 miles on them or that are over 10 years old.

If refinancing isn’t in the cards for your vehicle, consider working on your credit score for the time being. Once you improve your credit score, you're likely to have a better chance at qualifying for a lower interest rate.

Credit Building and Auto Loans

Building a good credit score can take time, but with a goal in mind and an auto loan that’s reported to the credit bureaus, you could improve it with the car loan you take on.

However, if you have a lower credit score, qualifying for a good APR may only be one of your concerns – some borrowers find it hard to qualify for auto financing at all. But here at CarsDirect, we want to help bad credit borrowers get the car loan they need.

We’ve created a nationwide network of dealerships that are signed up with bad credit lenders, and we want to find one in your local area. To get matched to a dealer near you, fill out our free auto loan request form.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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