What Is the Average APR for a Car Loan?

If you're ready to buy a new or used car, you might be in need of an auto loan. One of the key things to consider when choosing a financing option is the annual percentage rate (APR) you'll pay.

The average APR for a new car loan was 7.18%, according to Experian's State of the Automotive Finance Market report for the first quarter of 2024. The average APR for used car loans was 11.93% over the same period. Loan terms influenced the APR borrowers paid.

Shopping around can help you get the best rates on a car loan, based on your credit scores.

Average car loan interest rates by credit score

Credit scores can significantly impact what you pay for an auto loan or any other type of financing. The better your score, the lower your APR is likely to be. A lower score, meanwhile, may result in a higher loan rate.

The average credit score for someone financing a new car is 743. The average score for someone financing a used car is 684, according to Experian. Here's how the average car loan rate breaks down:

Source: Experian’s State of the Automotive Finance Market report, Q1 2024

Factors that affect auto loan interest rates

Lenders use multiple factors when deciding what rate to charge for a car loan. As mentioned, credit scores are on the list, but they aren't the only thing that comes into play.

Credit scores

Credit scores are one of the most important factors influencing car loan rates. Lenders use your credit scores to assess risk, based on how likely you are to repay what you borrow.

Lenders may check your FICO scores or VantageScores when reviewing your credit. FICO scores are the most widely used among lenders overall. These scores range from 300 to 850, with 850 being the highest score possible.

The FICO Auto Score is specifically used for car loans and ranges from 250 to 900. There are multiple auto score versions a lender may pull to check your credit.

VantageScores also range from 300 to 850, though they use a slightly different calculation than FICO scores. There are multiple VantageScore models auto lenders may use to check credit.

Loan term

Your choice of loan term can also affect your APR.

According to Experian's data, a shorter term was more likely to result in a lower average APR for new car buyers. Used car buyers, meanwhile, saw the lowest APRs for loans lasting 60 or 85+ months.

A lower APR could be a good reason to choose a shorter or longer term. Keep in mind that:

• Shorter car loans can mean higher monthly payments.
• Longer car loans can mean more interest paid in total.

Ultimately, it's wise to choose a loan term that best fits your budget.

Down payment

Your down payment is money you prepay against a vehicle's purchase. The larger your down payment, the less you need to finance.

That can work in your favor if you qualify for a lower APR. Lenders might see you as a higher-risk borrower if you opt for a smaller down payment which could lead to a higher APR.

Lender

Lenders determine where to set auto loan rates and what requirements borrowers must meet to qualify. That can influence the range of rates you're eligible for.

One thing to know about the annual percentage rate on a car loan is that it's not just interest; it also includes fees. The more fees a lender charges, the higher the APR may be.

Economic conditions

The overall economy can influence the direction in which car loan rates move.

If the Federal Reserve consistently raises the federal funds rate, which is the rate at which banks lend money to one another, that can result in higher loan rates. Car loan rates can remain higher until the Fed switches gears and implements rate cuts.

In a high-rate environment, car buying and financing become less attractive, particularly for borrowers with bad credit.

Where are auto loan rates heading?

Car loan rates are likely to remain stable for the time being, as the Federal Reserve has not confirmed any upcoming rate cuts. Those haven't been ruled out for 2024, but nothing is set in stone.

The overall trend for the federal funds rate is downward heading into 2025 and 2026, though projections are always subject to change. If you're trying to decide if now is the right time to get a car loan, it's possible that waiting could result in a lower APR.

However, if you must buy a car now, knowing the average rates can help you set your budget and compare financing options.

How to use average car interest rates

If you know what the average car APR looks like, you can use that to shape your decision-making. There are two ways the average car loan rates can prove helpful.

Estimate monthly payments

Working out a budget for car buying means knowing how much you can afford to put down and what kind of monthly payments are manageable. An online car loan calculator can help you estimate your payments based on:

• Vehicle purchase price.
• Down payment.
• Average car loan interest rate.
• Credit score.
• Loan term.

Some calculators also let you enter trade-in value if you're trading in a vehicle. You can play around with different down payment amounts and loan terms to see how your payments might increase or decrease.

Estimate loan costs

You can also use the average car loan interest rate to estimate how much you'll pay in total to finance a vehicle purchase.

Again, you'll use an online loan calculator and plug in the following:

• Vehicle purchase price.
• Down payment.
• Average car loan interest rate.
• Credit score.
• Loan term.

A good calculator should give you a breakdown showing the total amount paid in interest and principal. Some will even offer an amortization schedule showing how much of your payment goes to principal and interest monthly.

You can experiment with different terms to see how your total interest cost may increase or decrease.

How to get a better car loan rate

Getting a low car loan APR can save you money in interest and potentially result in a lower monthly payment. Here are some tips to get the best loan rate possible.

Increase your down payment

A larger down payment can help you get a lower rate if you have less to finance. Look at your car-buying budget and savings to see how much you could realistically put down.

If you have another vehicle to trade in, do some research on trade-in values. Resources like Edmunds and Kelley Blue Book can give you an idea of what you might be able to get for your car. Trade-ins reduce the purchase price, which can have the same effect on rates as offering a larger down payment.

Shop around

Comparing car loan rates can give you an idea of what's available for new or used vehicles in your area. Financing options can include:

• Traditional banks and credit unions.
• Online banks and online lenders.
• In-house financing.

In-house or buy here, pay here financing is often the most expensive. This is financing you get on the lot from the car dealer. If you have good credit, then you might be better off with a traditional bank or online lender.

Get pre-approved from at least three lenders to compare rates. Pre-approval means a lender tells you what terms you might qualify for without a hard credit check. Once you have your pre-approval numbers you can narrow it down to one loan.

Consider a co-signer

Having someone co-sign a car loan means they agree to assume equal liability for the debt. Borrowing with a co-signer can help you get a better rate if they have good to excellent credit.

Keep in mind that if you fail to make loan payments your credit can suffer—and so can your co-signers. Defaulting on a co-signed loan could ruin your relationship and potentially land both you and your co-signer in small claims court if the lender decides to sue for the amount owed.

Where to find the best auto loans

Doing some online research can help you find the best auto loan rates and lenders.

You can start by checking auto loan rates at your current bank, then branch out to other banks or credit unions in your area. From there, you can compare rates at online auto lenders.

As you shop for a car loan, remember to consider:

• Repayment terms.
• Fees.
• Minimum credit score requirements.
• Down payment requirements.

If you're considering a car loan from your current bank, you may want to ask about relationship rates or discounts for loyal customers.

TIME Stamp: Take your time to find the right car loan

Knowing the average car loan APR is a good starting point for finding a loan. Carefully researching your loan options can help you make the most informed decision possible so you're not stuck with a loan that strains your budget.

Frequently asked questions (FAQs)

What is a good interest rate for a 72-month car loan?

A good interest rate for a 72-month car loan could depend on whether the car you're buying is new or used, the amount you plan to finance, and your credit scores. A good rate for someone with excellent credit might be several points less than a good rate for someone with poor credit.

Is 24.99% APR high for a car loan?

An APR of 24.99% for a car loan is steep. That's higher than the APR you might pay for a credit card, which can be one of the most expensive ways to borrow. If you need a car loan but a lender is only offering double-digit rates, you may want to work on your credit score and delay buying until you're able to get a better loan.

Is 20% APR too high on a car?

A 20% APR on a car loan is high, compared to the average car loan APR. The higher your APR, the higher your monthly payments can work out to be. Your total interest charges paid can also increase.