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There’s no doubt that buying a car is expensive. The average price of a new car is more than $36,000, and a used car costs more than $20,000 on average. However, for many buyers, a car’s price doesn’t tell the entire story about what it costs to buy it. Because most people take out a loan to buy a car, the interest rate on their auto loan drives the final cost of the car up. In fact, an auto loan’s interest rate is usually the second most expensive part of buying a car. If you can get a good auto loan interest rate, you can save thousands.  

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Auto Loan Rates in September 2020

Credit Score New Car Loan Used Car Loan Refinance Car Loan
750 or higher 5.07% 5.32% 4.06%
700-749 6.02% 6.27% 4.65%
600-699 11.40% 11.65% 7.15%
451-599 16.46% 16.71% 12.49%
450 or lower n/a n/a n/a

These rates were supplied by our partner, MyAutoloan. These rates are for illustrative purposes only. Your individual car loan rate will vary.

Average Auto Loan Rates for Excellent Credit

Credit Score New Car Loan Used Car Loan Refinance Car Loan
750 or higher 5.07% 5.32% 4.06%

A score of 750 points or higher is considered excellent credit. These borrowers are seen as having a very low risk by lenders, so they get charged less interest. If your credit score is in this range, you may qualify for financing incentives and loan deals offered by auto makers. These car deals can have financing as low as zero percent, potentially saving you thousands.

Average Auto Loan Rates for Good Credit

Credit Score New Car Loan Used Car Loan Refinance Car Loan
700-749 6.02% 6.27% 4.65%

Lenders consider people with a score in the range of 700 to 749 to be a fairly low risk. However, while people in this range would generally get charged below-average interest rates from banks, credit unions, and other lenders, they are unlikely to qualify for zero-percent financing offers from car companies.

Average Auto Loan Rates for Fair Credit

Credit Score New Car Loan Used Car Loan Refinance Car Loan
600-699 11.40% 11.65% 7.15%

When your credit score is in the 600s, it starts to get expensive to borrow money. On the bright side, the rates for car loan refinancing are still relatively low for these borrowers. That means if you purchase a car with a high interest rate, you can refinance and save money once you’ve built up some equity.

Average Auto Loan Rates for Bad Credit

Credit Score New Car Loan Used Car Loan Refinance Car Loan
451-599 16.46% 16.71% 12.49%

People with poor credit are known as subprime borrowers. Lenders see people with subprime credit as being at a higher risk for not paying a loan back. As a result, lenders charge these borrowers higher interest rates to protect against loss. Some lenders won’t even work with borrowers in this credit range. Learn more about how to buy a car with bad credit.

Average Auto Loan Rates for Deep Subprime Credit

Credit Score New Car Loan Used Car Loan Refinance Car Loan
450 or lower n/a n/a n/a

Deep subprime borrowers will likely have a hard time finding a lender for a car loan, and when they do, they will pay extremely high interest rates. These high interest rates can add thousands of dollars to the overall price of a car and make monthly car payments extremely high.

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Why Does a Low Car Loan Rate Save Me Money?

Let’s look at the different auto loan rates above and see how they impact your bottom line. We’ll use a loan term of five years and a new-car loan amount of $28,800 (which is the amount left to finance after a 20% down payment on the average price of a new car at $36,000). Using the average interest rate for people with top-notch credit, 5.32%, that works out to $2,257 in interest payments. People with good credit and an interest rate of 6.02% will pay a bit more, with interest on the loan amounting to $4,495. When the rate goes up to 11.4% for people with fair credit, total interest payments also go up, hitting $8,863. At 16.46%, the average new-car interest rate we found for people with poor credit, the total interest comes to $13,266. That’s more than a third of the car’s purchase price of $36,000 and about $9,500 in added costs compared to what someone with excellent credit would pay.

Use our car loan calculator to find out how much you'd pay for a loan.

Let’s do the same thing for a loan on a used car. We’ll use a loan amount of $16,000. Borrowers with top-tier credit and an average interest rate of 4.90% would pay just $2,072 in interest over the life of a five-year loan. Interest costs hit $2,680 for borrowers with good credit an an interest rate of 6.27%. At 11.65%, the rate for buyers with fair credit, total interest costs hit $5,185 over five years. Buyers with poor credit get an interest rate of 16.71%, and pay $7,709 in interest, which is almost half of the original loan amount, and about $5,500 more than what someone with excellent credit would pay in interest.

Why Is My Auto Loan Interest Rate So High?

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Car loan rates are driven by two main factors: borrowing interest rates set by the Federal Reserve and your credit score. When the federal reserve keeps interest rates low, borrowing money to buy a car tends to be less expensive. 

After rates set by the Federal Reserve, your credit score has the most impact on the car loan interest rate you’ll pay. If you have a good credit score, you’ll qualify for a lower interest rate. When you finance a car, you borrow the amount of money you need to buy the car, and the lender charges you interest. The interest is basically rent on the money you borrow. It allows the lender to make a profit and get more of their money back if you default on a loan. You can read more about how financing a car works and check out our guide to car loans and leasing for more details.

Lenders perceive people with low credit scores as less likely to pay back the money they borrow. Factors that can contribute to a low credit score include things like being late on loan payments and other bills, having a high level of debt, or failing to repay loans. All of these factors indicate that a borrower has trouble managing money.

Other factors that impact your auto loan rate are the type and length of the loan. Used-car loans have a higher interest rate than new-car loans because used cars have a lower resale value than new cars. If you default on a used car loan, the lending company will be left with a lower-value asset to sell. They charge more interest to protect themselves and recoup more of their money in case the loan goes into default.

The length of the loan you’re looking for also affects your interest rate. A longer loan term means lower monthly payments, but it also means that you’ll be taking longer to pay the lender back. A higher interest rate helps them get more of their money back upfront, in the event you default on the loan.

How Do I Get a Lower Car Loan Rate?

The best way to lower your car loan interest rate is to improve your credit score. It may take a while, but if you pay bills on time and lower your debt-to-income ratio, your credit score will improve. As you get a better credit score, you will qualify for better auto loan rates, and you’ll save money on your car purchase. Read more about how to buy a car with bad credit for other ways to improve your credit score.

Once you have an improved credit score, shop around for car loan rate quotes. By getting quotes from multiple lenders, you’ll be able to choose the one that saves you the most money. You’ll also have an idea of what you should be paying in interest before you head to the dealership. Car dealers usually offer financing, but unless you know the rates you qualify for, you won’t know if the dealer is offering you a good or a bad financing deal. Having financing offers in hand gives the dealer an interest rate to beat if they want your financing business.

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View rates for new cars, used cars, or refinancing. Get four offers so you're prepared before you visit the dealer.

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You can also save on your auto loan by choosing a shorter loan length or putting more money down on your car, which lessens the amount of money you have to borrow.

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If you can’t raise your credit score enough to get a better car loan rate by the time you need to buy a car, you can get a loan with a higher rate, make the payments and work to refinance your car loan to a lower rate later. While you’ll still spend more on interest than if you had gotten the lower rate to start with, you’ll still probably pay less overall than if you kept the higher-interest loan for the full term.

Car Loans and Leasing | How to Finance a Car | How to Finance a Used Car