If you search for “average car loan APR” you’ll be met with a few numbers, but they mean nothing without an understanding of your own financial situation and how car loans work.
APR stands for annual percentage rate, and it refers to the cost of your loan, which includes the interest rate and additional fees. The APR of your car loan is largely dependent on your credit score. In most cases, the higher your credit score, the lower your APR will be.
You won’t know your exact loan APR until you start applying for loans. However, it is important to understand what rate you may qualify for before starting the car buying process.
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What affects an APR for car loans?
There are a few factors that contribute to the APR of your car loan. One of the biggest factors is your credit score, which determines your “creditworthiness.” In other words, your credit score indicates to lenders how likely you are to repay the money you owe.
Generally, borrowers with bad credit get a higher APR and borrowers with good credit get a lower APR. This is because lenders view low credit borrowers as risky or are more likely to do so default on their loans than those with good credit. You usually want to choose a loan with the lowest APR for your situation because it is the cheapest option to borrow money.
The basic scale for credit scores is:
- Bad: 300-629
- Fair: 630-689
- Well: 690-719
- Outstanding: 720-850
Keep in mind that some lenders will not even offer a loan to borrowers with bad credit. If you have bad credit, you may need to find a subprime lender, or a lender with more flexible eligibility requirements, to take out a car loan.
Another factor that affects the APR of auto loans is the type of car you are financing. In most cases, new cars have lower APRs while used cars have higher APRs. Shopping around and comparing loans can help you get the best loan terms for your financial situation.
Car Loan APRs by Credit Score
From 2022 the average interest rate for car loans was 4.07 percent for new cars and 8.62 percent for used cars. However, these rates are only averages – you may get a higher or lower rate based on various personal factors, such as your lender and the age of your vehicle.
To understand what car loan interest rate you may qualify for based on your credit score, check out the average rates below for different credit levels:
- Excellent (750 – 850): 2.96 percent for new, 3.68 percent for used.
- Good (700 – 749): 4.03 percent for new, 5.53 percent for used.
- Righteous (650 – 699): 6.75 percent for new, 10.33 percent for used.
- Weak (450 – 649): 12.84 percent for new, 20.43 percent for used.
Why are average interest rates different for new and used vehicles?
Usually, interest rates for used car loans is a bit higher than the rates for new car loans. This is because used cars tend to be less reliable than new cars. Charging a higher interest rate protects the lender in case your car breaks down and you can no longer drive it, forcing you to default on the loan.
Most lenders also charge lower APRs on new car loans because new cars are more valuable. If you are buying a brand new car with a high price tag, there is a higher chance that you will need to borrow more money. In this situation, the loan is much more profitable for the borrower, so you are often rewarded with a lower APR.
Average rates for car loans by lender
Even with a solid credit score, you’ll want to shop around for your auto loan and compare a few different options. Average car loan APRs vary from lender to lender. Here are some sample rate ranges according to Value Penguin.
- Alliance: 3.24 – 18.19 percent
- CapitalOne: 3.99 – 13.98 percent
- PenFed: 1.99 – 18 percent
- PNC Bank: 2.79 – 14.99 percent
How does a low APR save me money?
The APR of your car loan has a direct impact on how much you will pay to borrow the money over the life of the loan. This is why choosing a loan with a low APR is a smart financial move. Finding the lowest rate usually involves comparing several loans before signing a loan agreement.
You should also consider choosing a short-term loan to save the most money and get the lowest APR. Lenders offer lower APRs on shorter-term loans because borrowers will take less time to repay the loan. While longer loans may offer lower monthly payments, it costs more in the long run.
Here is an example. A five-year loan at $28,800 with a 4.96 percent APR will accrue $3,778 over the life of the loan. The same loan amount and term with an 11.93 percent APR would add up to $9,577.
For borrowers with poor credit, the same loan amount and term with an APR of 23.81 percent would cost them $20,721 in interest over the life of the loan. Therefore, a low APR can help you save more than $15,000 over the term of a car loan.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with over three years of experience covering personal finance and insurance. She has extensive knowledge of various lines of insurance, including auto insurance and property insurance. Her byline has appeared in dozens of online finance publications, such as The Balance, Investopedia, Reviews.com, Forbes and Bankrate.