How Do I Know if I'm Getting a Good Auto Loan Interest Rate?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 31, 2019

A good auto loan interest rate is something everybody hopes to get. Since interest rates vary based upon credit as well as other factors, a good interest rate isn't always going to be the same for everyone. However, there are a few things you need to know about interest rates before you can determine if you're getting a good deal.

How Auto Loan Interest Rates Are Determined

Before you can determine if the interest rate you're getting is good or not, you need to know what determines the interest rates for everyone. Interest rates are based on your credit score, the vehicle you finance, and the prime lending rate – the rate that banks charge each other to borrow money. The prime rate can go up and down, just like your credit score.

The most common credit scoring model used by automotive lenders is the FICO credit score. FICO scores range from 300 to 850. The higher your number, the better your credit.

Meanwhile, interest rate averages are based on the tier your credit score falls into. According to Experian, the FICO credit score tiers are:

  • Deep Subprime: 300 – 500
  • Subprime: 501 – 600
  • Nonprime: 601 – 660
  • Prime: 661 – 780
  • Super Prime: 781 – 850

The better your credit score, the closer your interest rate is likely to be to the prime rate. In order to know if the APR you're being offered by lenders is a good one, you first need to know where your credit score falls, and the average interest rates for that tier.

Average Car Loan Interest Rates by Tier

Now that you know the credit score tiers, you can determine where your score falls. If you don't know your credit score, you can typically get it free of charge from your bank, credit union, or credit card provider.

If yours don't offer free credit scores checks, there are a number of websites where you can get one or more of your credit scores. Some are free and some offer this service for a small fee. However, remember to try to get your FICO credit score, as this is the one a lender is likely going to use.

Once you know your credit score, you can see the average interest rates that people in that range qualify for. Keep in mind that the interest rate you qualify for depends on your specific situation, and you may or may not get an APR that falls in that range.

According to Experian, the average car loan interest rates for each credit tier are as follows:

  • Deep Subprime: 14.97% – 20.24%
  • Subprime: 12.42% – 17.52%
  • Nonprime: 8.08% – 11.40%
  • Prime: 5.12% – 6.57%
  • Super Prime: 4.20% – 4.82%

As you can see by the interest rate ranges by tier, the better your credit score is, the more opportunity you have to qualify for a lower APR. As credit scores progress deeper into bad credit territory, the range of interest rates that are possible get wider.

Interest rates also vary based on vehicle age. New cars are generally eligible for lower rates than used vehicles, and, according to Experian, it may be possible to get a slightly lower APR financing a used car at a franchised dealership compared to an independent lot.

Comparing Auto Loan Interest Rates

Now that you know how to find your credit score and the estimated range of interest rates you might qualify for, how do you know if you're actually getting a good rate? You have to compare the rates actual lenders offer you, which is where rate shopping comes in.

Rate shopping happens when you apply for the same type of credit from a few different lenders during what's called the rate shopping window – typically 14 days. Doing this allows the credit bureaus to count all inquiries you request as one hard inquiry, rather than multiple ones, which means your credit score doesn't drop as far as a result of applying for a loan.

Rate shopping is more difficult if you have bad credit because your choice of lenders is smaller to begin with. It's harder to get approved for an auto loan through traditional direct lenders like banks and credit unions.

In order to make the car financing process as easy as possible with bad credit, you're going to want to stick to subprime lenders that work indirectly, and exclusively, through special finance dealers. These lenders specialize in helping credit-challenged consumers get the financing they need.

Shopping for an Auto Loan

Finding a special finance dealership can sometimes be difficult because not all dealers work with subprime lenders, and not all those that do advertise this fact. That's where we come in. Here at CarsDirect, we work with a nationwide network of special finance dealerships that have the lending resources you're looking for.

Skip driving all over town looking for financing, and fill out our quick, free, and no-obligation auto loan request form instead. Once you do, we'll get to work matching you with a local dealer. Don't delay, get started today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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