How to Shop for the Best Car Loan Interest Rate

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By

Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


, Contributing Writer - December 11, 2017

Financing a car means paying interest. The interest rate a buyer receives plays a big role in how much a vehicle ends up costing, but there’s a way to shop for the best car loan interest rate.

Shopping for the Lowest Car Loan Interest Rate

Borrowers should start homing in on the best interest rate by getting their FICO score and researching the rate people in that credit score range typically qualify for (more on that in a second).

While this prep work provides a baseline, only a lender can tell a borrower the interest rate they'll receive, and the only way to find the best rate is to apply with multiple lenders and compare offers. This is known as “rate shopping.”

Rate shopping doesn’t hurt a consumer’s credit scores much. If a borrower applies multiple times for the same type of credit within a short time period, the credit bureaus treat it as a single hard inquiry.

This practice is encouraged, as borrowers can use pre-approved offers as leverage at the dealership – dealers often try to beat the best pre-approved rate using one of their lenders.

Average Interest Rates on Auto Loans

Lenders mainly use credit scores to determine car loan interest rates. Since credit scores provide a sense of how likely a borrower is to pay back a loan, people with bad credit generally end up with higher interest rates.

Although a credit score is the most important element, other factors are in play. The length of the loan, age of the vehicle, and state laws also influence interest rates. Further complicating matters, lenders have their own range of programs that place consumers into tiers based on their credit scores.

These varying factors make determining the rate a borrower can expect difficult, but looking at national averages provides a better idea. According to financial advice provider ValuePenguin, these are the average rates on 60-month car loans for new vehicles financed in 2017, based on FICO credit score:

  • 720-850: 3.60%
  • 690-719: 4.95%
  • 660-689: 7.02%
  • 620-659: 9.72%
  • 590-619: 14.06%
  • 500-589: 15.25%

Finding a Car Loan

Through research and rate shopping, car buyers can get an idea for their expected auto loan interest rate. Make sure to complete your search in a short period of time so it only counts as a single hard inquiry.

When you're ready to take the next step in the car buying journey, CarsDirect can help. We offer unique ways to help consumers buy new and used cars, even if they’re struggling with imperfect credit. Get connected to a local dealership by filling out our free and secure auto loan request form.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.


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