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Car Loan Rates – How to Find the Best Rates

When you borrow money to buy a car, the lender charges you interest on that amount. This allows them to cover their expenses and make a profit, as well as recoup their investment if you default on the loan. The amount of interest you pay depends on your credit score, but there are also other factors that can influence rates. For example, the type of vehicle you purchase and the length of the loan term can impact your auto loan rate.

Average car loan rates are higher for people with lower credit scores, but it’s still possible to find competitive rates. The key is to shop around and compare offers from various lenders, including banks, credit unions, online lenders, and car dealerships. Using a service that lets you prequalify for multiple lenders without doing a hard credit pull can give you an idea of what your potential rates look like.

In addition to your credit score, your debt-to-income ratio and the type of vehicle you purchase can impact your car loan rates. If you’re financing a new vehicle, it helps to have a large down payment in order to reduce the amount of money you have to borrow, which decreases your risk and may result in a lower interest rate. You can also try to reduce your borrowing amount by shortening your repayment term, although this will increase your monthly payments.

Whether you’re buying a new or used vehicle, you can also save on interest by financing the purchase through a lender rather than going the one-stop-shop route and getting your loan through the dealership. In fact, according to Experian, in 2021, credit unions’ share of the new-car loan market overtook both captive finance companies (automakers’ in-house financing arms) and banks.

The chart below showcases average car loan rates based on credit score and vehicle type for both new and used vehicles. Rates for those with excellent credit are low, but you can get even lower rates if you’re prepared to put down more of a down payment or have a shorter loan term.

You can find current car loan rates from a variety of different lenders at our partner MyAutoloan.

As of 2022, credit unions offered the lowest average new-car loan rates. They’re followed by online lenders and then traditional banks. On the other hand, new-car buyers can typically get better rates by taking advantage of zero-percent financing incentives and loan deals offered by many car manufacturers.

When you’re shopping for an auto loan, keep in mind that your actual rate will depend on several factors. To be sure you’re getting the best possible deal, you should compare offers from banks, credit unions, and online lenders, as well as checking the car dealer’s financing and insurance departments. Then, you can choose the best option for your unique financial situation. You can also see the top car loans from our partners by clicking the buttons below. And remember that you can always refinance your auto loan later to save on your monthly payments.