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It’s easy to forget that the price tag is only one part of the total cost of buying a used vehicle. Another significant cost is the interest you have to pay on your car loan.

With the average used car costing more than $20,000, most buyers have to take out an auto loan to afford the purchase. The interest you have to pay on that loan can add thousands to the overall cost. While there are other costs, such as taxes and insurance, to think about, car loan interest is often the second largest cost you’ll face when buying.

Getting a great deal on your car loan interest rate is an excellent way to save money. We’ll show you the average rates available and some strategies to help you find low rates.

Average Used Auto Loan Rates

Credit Score

Interest Rate

750+

3.85%

700-749

4.07%

650-699

6.36%

450-649

12.19%

449 or less

16.58%

Find the Best Rate for You

To find the current average used car loan interest rates for each credit tier, we looked at rates from our partner myAutoLoan for consumers with various credit scores across multiple metropolitan areas where myAutoLoan has data. We assumed a loan amount of $16,000, which is the average price of a used car, minus a 20 percent down payment.

Average Used Auto Loan Rate for Excellent Credit

Credit Score

Interest Rate

750+

3.85%

Borrowers with top-notch credit get the lowest used car financing rates, on average. Consumers with credit scores 750 points or higher are considered to have excellent credit. Lenders see them as being likely to make all of their monthly payments on time and pay off the loan as agreed.

Borrowers in this range shopping for certified used cars may qualify for special financing incentives offered by automakers. You can see these offers on our used car deals page.

Average Used Auto Loan Rate for Good Credit

Credit Score

Interest Rate

700-749

4.07%

Borrowers with credit scores between 700 and 749 may have a ding or two on their credit reports, but lenders still consider them to be pretty low risk. They can expect lower-than-average interest rates from banks, credit unions, and other financial institutions but will find it difficult to qualify for special financing incentives from automakers.

Average Used Auto Loan Rate for Fair Credit

Credit Score

Interest Rate

650-699

6.36%

Getting a car loan when your credit is between 650 and 699 can be significantly more expensive than it is for borrowers with better credit scores. In fact, the current average interest rate is more than double what it is for prime and super-prime credit borrowers. Even at 6.4 percent, however, borrowing rates for buyers with fair credit are currently pretty low when compared to historical standards.

A good strategy if you get one of these loans is to make all of your payments for a year or so, then refinance at a lower rate since you can show a track record of making payments and have built up significant equity in the car. Read our article on refinancing a car to learn more.

Average Used Auto Loan Rate for Bad Credit

Credit Score

Interest Rate

450-649

12.19%

Lenders consider borrowers with credit scores below 650 to be “subprime.” They see them to be far less likely than average to make their monthly payments on time or completely pay off the loan. Some lenders won’t lend to subprime borrowers. Others will, though, but you’ll have to pay for the added credit risk by paying significantly higher interest rates than borrowers with better credit scores.

Read our article on how to buy a car with bad credit to learn more about buying and financing a car when you don’t have a very good credit score.

Average Used Auto Loan Rate for Deep Subprime Credit

Credit Score

Interest Rate

449 or less

16.58%

If your credit score is 449 or lower, you will have a tough time finding a lender to give you an auto loan. If you do find one, you’ll have to pay exorbitant interest rates that will add thousands to the total price of your car. The deep subprime market is also where you find unscrupulous lenders who can put desperate buyers into debt traps that are nearly impossible to escape.

Nonprime buyers often have auto loan delinquencies or defaults in their credit reports, which makes lenders especially cautious when considering an application.

How Does a Low Car Loan Rate Save Me Money?

Your credit score makes a huge difference in the amount of interest you pay. It affects both the total cost of the car and the size of your monthly payments. To illustrate, we’ll use some of the current rates to show you differences in interest costs for a $16,000 five-year car loan on a used vehicle.  

Cost of a $16,000 Five-Year Car Loan on a Used Vehicle

Credit Score

Interest Rate

Monthly Payment

Total Cost Over 5 Years

Total Interest Over 5 Years

750+

3.85%

$294

$17,640

$1,640

700-749

4.07%

$295

$17,700

$1,700

650-699

6.36%

$312

$18,720

$2,720

450-649

12.19%

$357

$21,420

$5,420

449 or less

16.58%

$394

$23,640

$7,640

Using our car loan calculator, we can determine the 3.85 percent average interest rate available to buyers with top-notch credit generates a monthly payment of $294 per month. Over the five-year term of the loan, you’ll pay $17,640 total. Of that, $1,640 is interest.

Buyers with good credit would pay 4.07 percent interest, with monthly payments of $295 and a total of $17,700 over the course of the loan. The total interest paid in this case is $1,700.

For buyers with fair credit who pay the average rate of 6.36 percent on the loan, the payments jump to $312 per month. Over the life of the loan, you’ll pay $2,720 in interest. That’s much higher than the interest buyers with good or excellent credit would pay for the same car.

Auto loan applicants with bad credit would pay an average of 12.19 percent on a five-year loan. That would push their payments up to $357 per month, or $21,420 over the life of the loan. The $5,420 paid in interest during the loan term is more than triple the interest paid by borrowers with good or excellent credit.

Customers with deep subprime credit could expect to pay an average of 16.58 percent on the used car purchase. At that interest rate, the monthly payments climb to $394. Over the five years of the loan, the interest payments would total a staggering $7,640. The $16,000 used car would cost a deep subprime buyer $23,640 over the term of the loan. That’s $6,000 more than the same car would cost a buyer with a great credit score.

Why Is My Auto Loan Interest Rate So High?

When you borrow money for a pre-owned car, you’re actually renting the money from the bank. The interest is the cost of renting the money. It covers their cost of doing business, their profit, and pays for the risk involved in lending you money.

Lenders look at several factors when deciding what interest rate to charge. First, they have to cover the cost they have to pay the Federal Reserve (often referred to as “the Fed”) that lends them the money they lend to you. When the Fed keeps interest rates low, banks, credit unions, and other lenders can keep their auto loan rates lower. With Fed rates slowly rising throughout 2018 and into 2019, buyers can expect auto loan interest rates to climb as well.

Another major factor lenders consider when pricing loans is risk. While your job history, assets, and other information on your loan application play a part in determining your creditworthiness, the most significant risk indicator is your credit score. Drawn on information found in your credit report, your credit score is a three-digit number that reflects your history of making on-time payments, how much credit you have available, and how much credit you are using. Though it's sometimes referred to as a FICO score, the FICO scoring model is just one of many models used by credit reporting bureaus Equifax, Experian, and TransUnion. You actually have many credit scores, but the numbers are usually pretty close to one another.

The higher your credit score, the more a lender believes you will make timely payments and ultimately pay off the loan. The lower your score, the less faith they have that the loan will be repaid. Take a look at our articles on how financing a car works and our guide to car loans and leasing to learn more about borrowing money to buy a car.

How long you plan to take to pay off the loan also figures into the interest rate you are charged. The longer the loan, the higher the risk that you'll stop paying at some point. A higher interest rate helps the lender recoup more of the car’s value early in the loan, somewhat protecting them if the loan goes bad. Four-year loan terms will almost always have lower interest rates than five- or six-year car loans.

Used car loans typically have higher interest rates than new car financing because there’s more uncertainty as to the value of the car, and lenders can demonstrate that used car borrowers default more frequently on their auto loans, regardless of their credit.

How Do I Get a Lower Car Loan Rate?

There are several ways to ensure you can get the best car loan interest rate.

Improve Your Credit Score

The most sure-fire way is to improve your credit score by making on-time payments for all of your bills and working to pay off any debts that are dragging the score down. Showing that you can pay your bills on time and lowering your debt-to-income ratio demonstrates to lenders that you are financially responsible. Unfortunately, moving your credit score upward takes a significant amount of time.

You can get a free copy of your credit reports from each of the leading credit reporting agencies for free once a year at annualcreditreport.com. It's essential that you do so because many reports contain errors. Correcting those errors can improve your score.

Get a Preapproval

It is critical that you have a preapproved auto loan in place before you start your car shopping. Leaving your financing up to a dealer opens you up to a lousy loan deal, where you have to pay too much interest.

Dealers make a large part of their profit by marking up the interest rate they offer you on loan packages from third-party lenders. When you have a preapproved offer in place, you'll set a benchmark they have to beat to earn your financing business.

You can shop around at several lenders and apply online for loans. As long as you do so in a short span of time (to limit the impact on your credit score), there’s no problem with applying to several lenders to see which can offer you the best deal. A common guideline is to complete all of your loan applications within about three weeks. U.S. News partner myAutoLoan can get you up to four offers with just one online application.

If the credit challenge that caused a decline in your score was caused by a temporary event, such as an injury that prevented you from working or a job loss, and you’re back on track toward improved credit, it might be worth your time to sit down with a loan officer at a smaller bank or credit union. Smaller lenders often have more flexibility in setting rates. If you can demonstrate you’re a better risk than your score indicates, you might get a better interest rate.

Get the Car Loan That's Right for You

Apply for financing today, and get up to four offers. Compare your options before visiting the dealership to make sure you get the best rate for you. It's free, quick, and easy.

Keep Your Loan Short and Small

By keeping your loan as short as possible and paying a significant amount of money down, you’ll often qualify for a lower rate. Making a large down payment and keeping the loan amount to a minimum lowers your loan-to-value ratio (LTV). Lenders love low LTVs and dislike high LTVs.

Take Advantage of a Used Car Deal

Shoppers who purchase certified used cars (CPO cars) from franchised new car dealerships can often take advantage of special deals offered by carmakers with below-market interest rates. Unfortunately, you won’t generally find cash rebates with used cars as you'll find on new cars, but a discounted rate can save car buyers a good deal of money.

CPO cars are gently used models that are typically a couple of model years old with low mileage and no history of accidents. Carmakers provide warranty coverage on the vehicles, which can provide significant savings in repair costs. Many of them were leased as new cars and were trade-ins at the end of their leases. Car deals come with many restrictions and are usually available to buyers with well-above-average credit scores.

Refinance to a Lower Interest Rate

Even if you have to buy a car while you have a bad credit score, there's still an opportunity to save money down the road. After paying on time for a year or so, your score will likely have moved up. By refinancing your loan with your improved score, you may be able to lower the interest rate on your auto loan significantly. Read our article on refinancing your car loan to learn more.

Make Your Payments

The best way to improve your credit score and ensure you don’t default on your auto loan is to make your payments on time. Setting up automatic payments from your bank account to your lender is an easy way to ensure your loan repayment goes smoothly. If you have your auto loan at the same financial institution as your checking account, setting up an autopay is easy. If they’re at different places, most banks and credit unions have online bill pay systems that can be used to set up your monthly car payments.

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