If you’re interested in financing your vehicle, it’s important to understand what to expect when it comes to auto loan interest rates. After all, it’s not just a monthly payment you’re responsible for. Read on to learn more about car loan interest rates and the best car loan interest rates you can expect based on your financial circumstances.
What Is An Auto Loan Interest Rate?
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An auto loan interest rate is the additional cost you pay for borrowing money from an auto lender. Expressed as a percentage, it’s dependent on several factors relevant to a lender’s risk in offering consumers a loan.
What Is The Average Interest Rate For A Car Loan?
With a median credit score of 711 for all auto loan consumers, the national average interest rate is 5.27% on a 60-month car loan. For reference, the annual percentage rate (APR) ranges from 3% to 10% for auto loans.
Since this figure is an average, it’s important to remember that your own rate depends on a variety of factors such as your credit score, the auto loan term length, the auto loan lender, and the age of your vehicle. Here’s a look at how each of these factors plays a role in the average interest rate:
Average Auto Loan Rates by Credit Score
Your auto loan rate is highly dependent on whether you have good or bad credit. If you have a high credit score, you often qualify for a lower interest rate, whereas a lower credit score makes you susceptible to a higher interest rate. This is because a high credit score indicates you have a solid financial history and that you’ve made your payments on time. In contrast, a lower credit score reflects poor financial history, a trend of late payments, and potential debt defaults and bankruptcy. When auto lenders determine interest rates, they reward individuals with high credit scores because it’s safer to work with them based on their financial history.
More often than not, a high credit score such as 760 and above qualifies you for an interest rate as low as 3%. On average, though, excellent credit qualifies you for 4.78% on a new car loan and 5.03% on a used car loan. Though you can apply for a loan with a lower credit score, it’s a riskier investment for lenders. Because of this, low credit scores often lead to higher interest rates as high as 20%. On average, bad credit gets you an average of 18.77% on a new car loan and 19.02% on a used car loan.
Average Auto Loan Rates by Term Length
Along with your credit score, the length of your loan plays a significant factor in determining your auto loan rate. Most payment plans offer terms ranging from 24 to 72 months. Typically, the shorter your loan, the lower your interest rate. To give you an idea of what to expect, the average interest rate for a 36-month loan is 4.21%, whereas the average interest rate for a 72-month loan is 4.45%.
Keep in mind that with a higher APR on a longer-term auto loan, you may end up paying more on the auto loan than the actual value of your vehicle. For example, let’s say you have a longer-term loan with a lower monthly payment. Under these circumstances, you’re accumulating interest over several months that may outweigh the benefits of a lower monthly payment. In addition, if you have an older car that depreciates quickly, it may not be worth it.
Average Auto Loan Rates by Lender
Your auto loan lender also influences the rate you receive. Whether you go through a bank, a credit union, or a dealership, your rate significantly changes. Here’s a look at each of these options:
- Bank: Though you can get you a rate as low as 3% with a bank, the top rates they offer vary widely. Banks also have specific eligibility requirements for their loans, so keep that in mind.
- Credit union: Credit unions tend to have more flexible payment schedules and offer consumers lower interest rates compared to banks. They may also require lower loan minimums. On the downside, they may only offer their lending services to members.
- Dealerships: If you’re interested in a new car, dealerships offer baseline APRs as low as 0%. As expected, lower rates tend to go to qualified customers with optimal financial profiles. However, here at Panama City Toyota, we’re committed to offering you the best rate for your individual circumstances.
Average Auto Loan Rates by Vehicle Age
Whether you’re purchasing a new or used vehicle also impacts your auto loan interest rate. Typically, used cars come with an interest rate that’s higher than those you see on new models. This is because older vehicles come with higher risk since they’re not as reliable.
Can You Haggle An Auto Loan Interest Rate?
Yes. While there are several factors that affect your auto loan interest rate, you can often negotiate the rate to your liking. Consider doing this if you believe the first rate the dealer offers you isn’t the lowest you qualify for. If you proceed, compare the rate you receive from other lenders and negotiate accordingly.
Tips For Getting A Good Interest Rate
If you’re unhappy with the interest rate you receive, there are several things you can do to turn the odds in your favor. Here are some tips to help you get some of the best car loan interest rates:
- Improve your credit score. Your credit score is dependent on several factors, including your credit payment history, outstanding debt, and the length of time you’ve maintained a credit line. To improve your credit score, work on lowering your debt and paying all of your bills on time.
- Try another lender. Once you improve your credit score, research various auto lenders and get a quote from each. Compare these quotes and choose the one that gets you the best deal.
- Estimate your auto loan interest rate. Before you start the financing process, consider the potential interest rates you may get. This helps you determine whether or not you’re getting a good financing deal from the loan lender you choose. If you get a rate that doesn’t align with your estimate, look for another lender that may offer you a better deal.
Now that you know what to expect when it comes to auto loan interest rates, start your own research based on your financial situation. Contact us today for more information on the best new car interest rates and the best interest rates for used cars.
