Typical Interest Rates for Good and Bad Credit

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Automotive Editor

Rebecca Ballard is a freelance writer who specializes in the automotive industry. A unique interest in finding affordable and dependable automobiles keeps her busy researching the most up-to-date information in the automotive field.


, Automotive Editor - November 11, 2021

Before getting your heart set on the perfect new or used car you need to understand how much you can afford to pay for a vehicle. If you are thinking about buying a car, you first need to check your credit score. Next, compare different interest rates. The rates you find are going to depend on whether you have good or bad credit. Most people don't realize how bad credit can affect their car buying experience.

Average Interest Rates for Good Credit

Car buyers who have a credit rating from around 700 to 850 have good-to-excellent credit. These buyers typically pay between 2.34% and 3.48% interest on their new car loans, according to the Experian State of the Automotive Finance Market report for the second quarter of 2021. The average interest rate for used cars is between 3.66% and 5.49%.

When shopping for a new or used car with good credit, you're likely to see dealerships advertise no money down for qualified buyers. However, to qualify for a deal like this, you usually need a very good credit score. Good credit is typically considered a score of around 670 or higher.

If your credit score is any lower than this it may make more sense to increase your credit score before applying for a loan. You could save thousands of dollars on your car purchase with a lower interest rate.

Average Interest Rates for Bad Credit

In today’s economy, more and more people are facing average or bad credit scores, but the average credit score among car buyers has been increasing. The average interest rate for someone with an average credit score – a score between 601 and 660 – is currently 6.61% (new) and 10.49% (used) according to Experian. The interest rate for someone with bad credit varies from 11.03% all the way up to 14.59% for a new car, and 17.11% to 20.58% or more on average for a used car, depending on your credit score and the lender you're working with.

If you are able to boost your credit score before applying for a loan you could save thousands of dollars in interest over the life of the loan. When you are thinking about your budget and how much you can realistically pay for a car, keep your credit score in mind and how much you will likely pay for interest.

Even if the dealership is able to get the payments down to a reasonable amount by extending the terms of the loan, make sure you are not paying more than the vehicle is actually worth.

Overall, keep in mind that your credit score – good or bad – has long-term consequences.

Is Your Credit Good or Bad?

Before you can research the average interest rate for borrowers in similar situations, you need to know where your credit score stands and what's on your credit reports.

When you get an auto loan, your interest rate depends largely on your credit score, a number between 300 and 850 on the FICO credit scoring model (it's the most commonly used among auto lenders). Your credit score influences many aspects of your car loan, but your credit reports are what build your score. And, there are five factors in your credit reports that combine to make your credit score:

  • Payment history – 35% of your score. This shows lenders how you've handled loans in the past, and whether you pay your bills on time or not.
  • Amounts owed – 30% of your score. This shows lenders how much installment credit (car loans, mortgages) and revolving credit (credit cards) that you're using.
  • Length of credit history – 15% of your score. The longer you've been using credit the better. If you're new to credit, you typically have a lower score, but lenders can tell the difference between a low score for no credit vs. bad credit.
  • New credit – 10% of your credit score. When you don't apply for credit you keep your credit file thin, but if you apply for all the credit, it's also a red flag, so apply for credit only when you need it.
  • Credit mix – 10% of your score. This is the mix of revolving and installment credit you have. It's seen as a healthier credit score if you have a mix rather than all credit card or loan debt.

Knowing what goes into your credit score, you can check your credit reports and see how you're doing in these areas. You can check your credit reports for free once a week until April 2022 by visiting Annualcreditreport.com. If your credit score is around 670 or below you're said to have poor credit and might need to look for a special finance dealership in order to find a lender to work with you on an auto loan.

Finding a Dealer to Work With

Whether your credit is good or bad, if you need to find a lender or dealership to work with, CarsDirect wants to help. We can connect you with a lender in your area from our network of special finance dealerships, or you can search for your next new or used car right here.

Get started right now by filling out our car loan request form. There's never any obligation, and as always, it's fast and free!

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, Automotive Editor

Rebecca Ballard is a freelance writer who specializes in the automotive industry. A unique interest in finding affordable and dependable automobiles keeps her busy researching the most up-to-date information in the automotive field.


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