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    Car Loan APR: What's A Good Rate?

    When buying a new car, one of the preliminary aspects that customers consider is how they’ll be paying for the purchase.

    In most cases, it turns out that financing is their best option. 

    If a car loan is what you need, it is worth doing exhaustive research on the available rates and terms.

    The rates and terms for these loans vary widely by lender and other factors like your credit history, debt-to-income ratio, ongoing liabilities, and more.

    Keep reading to learn about how to find the best available rates while shopping for a car loan.

    Average Interest Rates For Auto Loans

    The national average APR rate for auto loans in the US is around 5.27% for 5-year terms.

    However, these rates vary a lot for individual buyers based on the term, credit score, the age of the vehicle that needs financing, and similar other risk factors that might be relevant to any lender underwriting loan.

    Borrowers with high scores are considered prime applicants and can get approved for rates as low as 3.00%, while low scores are categorized as subprime borrowers.

    Subprime means a higher risk for lenders. Hence, these borrowers often see rates that can go as high as 20.00%. 

    Here’s  a quick overview of the available average rates for new cars over a 60-month loan term as of May 2020:

    • An excellent credit score between 720-850 can help you uncover a rate of 3.60% on average.
    • With a score between 690-719, you’ll see average rates of 4.95%.
    • A score of 660-689 will get you a rate of approximately 7.02%.
    • If you have a FICO score between 620-659, the average rate is around 9.72%.
    • For a score between 590-619, the rate goes up to 14.06%.
    • If you have a subprime score ranging between 500-589, you’ll probably end up paying 15.24% or more.

    The median credit score for auto loans is 711. If you have a score within this range, expect an interest rate closer to 5.27%.

    What Determines Auto Loan Interest Rates?

    There are quite a few factors that determine the rates you’ll receive. These include:

    1. Your FICO Score And Credit History - The higher your score, the lower the rate you’ll be offered. Your credit history includes the details of ongoing liabilities, outstanding debts, and the duration of your open credit. 
    2. The Vehicle You Wish To Buy - Financing rates on used vehicles are comparatively higher than new cars. This is mostly because new car’s have a higher resale value and come with manufacturer incentives.
    3. The Term Of The Loan - If you choose a longer repayment term, lenders consider it a high-risk investment. Hence, the rates offered will also increase.
    4. The Car’s Model, Make, And Age - Not all new cars have the same resale value. Some brands or models have more demand than others. The APR also fluctuates based on these features.
    5. The Down Payment - The amount you wish to put in as a down payment also influences the rates you’ll get as it directly impacts the vehicle’s loan-to-value ratio.

    How To Secure A Low APR?

    Instead of shopping for the car first, start shopping for available car loans.

    It is a good idea to collect quotes from multiple lenders - both banks and dealerships - to have a clearer understanding of what the market has to offer to match your creditworthiness.

    • You need a decent credit history and a stable job in order to lower your APR. Review your credit history and work on your score to gain access to a good rate.
    • Look for available options from credit unions and banks where you have ongoing relationships. You’ll likely receive better rates relative to a new lender.
    • Compare multiple options online and collect as many quotes as possible. If eligible, try to get pre-approved. Preapprovals are generally valid for a period of 30 to 60 days. With a preapproved loan, you’ll have better chances of negotiating good rates with dealerships.
    • Try putting in a higher down payment to decrease the loan-to-value of your vehicle  purchase. A higher payment lowers the risk for the lender, which might then agree to offer you comparatively better rates.


    Keep in mind that buying a car isn’t an investment because they depreciate quickly.

    Hence, you need to plan your purchase, especially when you’re opting for financing.

    It is a good idea to review your credit score, compare quotes from lenders, and calculate estimates with online calculators before you start shopping for cars.

    If you have a low credit score, it is in your best interest to try and increase it by managing your ongoing debts.

    Follow the tips listed above to obtain the best rates on your next car purchase.