What’s A Good Interest Rate On A Car Loan?

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


, - February 25, 2022

If you're looking to get a good APR on a car loan, your results may vary depending on your credit background. Your annual percentage rate, or APR, is the interest rate at which you’re charged for the whole year when you borrow money. In most cases, your credit score will be the largest determining factor in the rate you qualify for. Here's what you need to know.

What's a good interest rate on a car? If you can land an interest rate under 4% 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 2.47% to 12.53%, on average, representing the difference between Super Prime and Deep Subprime credit, according to the latest data from Experian for Q4 of 2021. There may also be 0% financing deals from captive lenders.

For used vehicles, the average interest rate can range from 3.61% APR with Super Prime to 19.87% for Deep Subprime. If you can get a rate under 6% for a used car, this is likely to be considered a good APR. The actual interest rates you can qualify for vary depending on your credit rating, the loan term, the type of vehicle you’re financing, and more.

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 may also be 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 determine an exact value for a used car.

Can you get a better interest rate? The best way to secure a lower APR is by having a good credit score. Your FICO score serves as a quick way for 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.

In addition, you can rate-shop with multiple lenders 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.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


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