Average Car Loan Interest Rate by Credit Score: What To Expect

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Your credit score is one of the most important factors lenders look at when deciding how much interest to charge on your auto loan. Avoid unpleasant surprises by finding out your score before you apply. Then improve your credit, if necessary, to qualify for a low rate.

What Is an Auto Loan Interest Rate?

An auto loan interest rate is the percentage of your loan amount that the lender charges you as a fee for issuing the loan. The annual percentage rate is the actual annual cost of that interest rate after accounting for the origination fee and other loan fees. Because APR represents the true cost of the loan, it’s the best rate to use when you’re comparing loans from different lenders.

Lenders consider several factors when calculating the rate for a particular borrower. Some are things you have no control over, such as federal interest rates. One you can control, however, is your credit score — and that has a major impact on your rate.

Your credit score predicts how risky a borrower you are. Low credit scores correlate with a high risk of loan default, and lenders charge higher rates to offset that risk. On the other hand, high credit scores correlate with a low risk of loan default, which allows lenders to offer lower rates.

Average Car Loan Interest Rates by Credit Score

Average rates vary widely from the lowest credit scores to the highest. According to data from Experian’s State of the Automotive Finance Market report for the third quarter of 2024, the average APR for a new car loan was 5.08% for super prime borrowers with excellent credit. The average soared to 15.43% for borrowers with deep subprime, or very poor, credit.

Rates on used cars are slightly higher across the board, but the spread between the worst and best credit is even higher: 21.55% with very poor credit vs. 7.41% with excellent credit.

Here’s a closer look at averages Experian calculated for each credit score category using the VantageScore® 4.0 scoring model.

Factors That Affect Your Auto Loan Interest Rate

When you apply for an auto loan, the rate you receive is based on several different factors, including the following:

Credit Score

A higher credit score earns you a lower interest rate on your new or used car loan.

Income

Lenders look at your monthly income and how much other debt you have. A higher debt-to-income ratio correlates with higher risk because the borrower’s budget is stretched thin.

Down Payment Size

A larger down payment means the buyer has more skin in the game, so to speak. Having more of their own money invested in the car makes them less likely to default on their loan.

Loan Term

Long loan terms, such as 60 or 72 months, give borrowers more time to default. That added risk means a higher rate than you might pay with a 36- or 48-month term.

New vs. Used Vehicles

Lenders can charge lower rates on new car loans because they know more about the cars. They know what the value was when it left the lot, they have a clearer sense of how quickly it’ll depreciate and they can be relatively sure it won’t have mechanical issues because it’s brand new. Not so with a used car.

Lender Type

Several types of lenders, including traditional and online banks and credit unions as well as non-bank lenders, offer auto loans. Online banks and credit unions might offer lower rates — online banks because of their lower overhead, and credit unions because they’re nonprofit member-owned financial institutions.

How To Improve Your Credit Score for Better Auto Loan Rates

Improving your score can help you secure a better rate on your auto loan, which can save you hundreds of dollars in interest. For example, a 6% rate on a $30,000 auto loan would cost nearly $4,800 in interest over a five-year term. Increase the rate to 13% and the total interest payment jumps to about $5,480.

Follow these tips to improve your credit score:

• Pay your bills on time every month. Your payment history is a major factor in your credit score calculation.
• Pay down credit card and loan debt to reduce your credit utilization rate. Utilization also has a strong impact on your score.
• Check your credit report for errors and forgotten accounts. Dispute incorrect information, and make sure your account payments are up to date.
• Avoid applying for new credit until you’re ready to apply for your auto loan. Credit inquiries reduce your credit score. As long as you apply for auto loans within two weeks, though, your credit report will only show a single inquiry.

Tips for Getting the Best Auto Loan Interest Rate

Improving your credit is just one way to qualify for a low auto loan rate. Here are some more:

• Shop for lenders. Research rates from several lenders, including banks, credit unions and online lenders. Select a few that are offering the best rates and loan features, and request personalized quotes to compare. Remember to base the comparisons on the loans’ APRs.
• Once you’ve found the best loan for your needs, request a preapproval. You can usually apply for one on the lender’s website. The preapproval helps you establish your car-buying budget and can give you leverage to negotiate with car dealers.
• Make a large down payment. Lenders see borrowers’ willingness to invest their own cash as a positive sign that they’ll take their loan repayment responsibility seriously.
• Negotiate with the dealer. Dealers sometimes offer promotional loan rates or incentives that can save you money on the car itself, plus the cost to finance it.
• Consider refinancing later. If you don’t qualify for a low rate now, you might consider borrowing at a higher rate and trying to refinance the loan later. But keep in mind that this can backfire, especially if you have a very high rate and have a low down payment. If the car depreciates to the point where you owe more than the car is worth, you won’t be able to refinance unless you pay the difference between the car’s value and your loan balance.
• Delay your purchase: Sometimes the best approach is to delay your purchase until you’re in a better financial position. Taking the time to work on your credit and save up more down payment money can pay off in the end.

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