What counts as a low car loan rate right now
A low car loan rate depends on what lenders are offering in your area and what rate you personally may have access to for — there is no single number that is "low" everywhere. Your actual rate will depend on your credit score, the age and price of the car, how much you put down, and how long you want to borrow for. A rate that is low for someone with a credit score of 650 might be high for someone with a score of 750.
The best way to know if a rate is low is to shop around and compare what different lenders will offer you. Banks, credit unions, and online lenders all set their own rates. Getting quotes from at least three different sources takes about an hour and shows you the real range of what you can get. When you compare, make sure you are looking at the same loan length — a 36-month loan and a 60-month loan will have different rates, even from the same lender.
Key Takeaways
- Your credit score is the single biggest factor in what rate you will be offered, so checking your score before you shop helps you know what to expect.
- Credit unions often have lower rates than banks for borrowers with average credit, and membership is sometimes open to people in your area or profession.
- Getting pre-approved by a lender before you go to the dealership gives you a real rate offer and lets you negotiate from a position of strength.
- Shorter loan terms (36 or 48 months) usually come with lower rates than longer ones (60 or 72 months), even though the monthly payment is higher.
- The rate you see advertised online may not be the rate you get — lenders show their best rates to attract customers, but your actual rate depends on your credit and the car.
How your credit score affects the rate you will be offered
Lenders use your credit score to decide how risky it is to lend you money. A higher score means you have a history of paying bills on time, so lenders charge you less. A lower score means more risk to them, so they charge you more. The difference between a score of 620 and a score of 750 can be 3 to 5 percentage points — which on a $25,000 loan over five years means paying thousands of dollars more in interest.
Before you start shopping for a car loan, pull your credit report from AnnualCreditReport.com, which is the only free source authorized by the federal government. Look for errors — wrong accounts, accounts that should be closed, or payments marked late when you paid on time. If you find mistakes, dispute them with the credit bureau. Fixing errors can raise your score by 10 to 50 points, which can lower your rate.
If your score is below 650, you have options other than accepting a high rate. Waiting three to six months while you pay down credit card balances and make all payments on time can raise your score. Adding a co-signer with better credit can get you a lower rate. Or you can look at buying a less expensive car, which lowers the loan amount and makes lenders more willing to work with you.
Where to look for low rates: banks, credit unions, and online lenders
Banks are the most familiar source, but they are not always the cheapest. Your own bank may offer you a rate, but it is worth checking other banks too — rates vary widely. Online banks like LendingClub, Lightstream, and Upgrade let you get a quote in minutes without visiting a branch, and some have competitive rates for borrowers with good credit.
Credit unions often beat banks on rate, especially if your credit is fair or average. Credit unions are member-owned, so they can afford to lend at lower rates because they are not trying to maximize profit. You do not have to work for a company with a credit union to join — many credit unions let you join if you live in a certain area, belong to a certain profession, or have a family member who is already a member. Start by searching CO-OP Network or Shared Branch to find credit unions near you that you might be able to join.
Online lenders like Upstart, Earnin, and Elevate specialize in loans for people with lower credit scores. If your score is below 650, these lenders may offer you a rate when traditional banks will not. The tradeoff is that their rates are usually higher than what you would get from a bank or credit union if you had better credit.
Getting pre-approved before you go to the dealership
Pre-approval means a lender has looked at your credit and income and told you what rate and loan amount they will give you. It is not a may provide, but it is a real offer. Getting pre-approved before you shop for a car gives you three advantages: you know your budget, you know the rate you will actually pay, and you can negotiate with the dealership from a position of strength.
When you walk into a dealership without pre-approval, the dealer's finance office will arrange the loan for you — but they will shop your process to multiple lenders and steer you toward the one that pays them the highest commission, not the one with the lowest rate for you. With pre-approval in hand, you can tell the dealer you already have financing and ask them to match or beat that rate. Many will, because they would rather sell the car than lose the sale.
Getting pre-approved takes 15 to 30 minutes and requires your Social Security number, income information, and permission for the lender to pull your credit. You can get pre-approved from multiple lenders in the same week without hurting your credit score — multiple credit inquiries for the same type of loan (auto loans) within 14 days count as a single inquiry.
Why loan length matters for your rate
A 36-month loan will have a lower interest rate than a 60-month loan from the same lender, even though the monthly payment is higher. Lenders charge less for shorter loans because they get their money back faster and have less time for something to go wrong. The difference is usually 0.5 to 1.5 percentage points.
The longer your loan, the more interest you pay overall. On a $25,000 loan, the difference between a 48-month loan at 5% and a 72-month loan at 6.5% is roughly $4,000 in extra interest. Before you choose a longer loan just to lower your monthly payment, calculate the total cost. A payment you can afford is important, but a loan that costs thousands more is expensive.
If your monthly budget is tight, look for ways to lower the loan amount instead of extending the term. Putting down a larger down payment, buying a less expensive car, or waiting a few months to save more money all reduce what you have to borrow and lower both your rate and your total interest cost.
Red flags that a rate offer is not actually low
Dealerships sometimes advertise rates like "0% financing" or "rates as low as 2.9%" — but those rates are only for borrowers with excellent credit, and they often come with strings attached. A 0% rate might require you to give up a manufacturer rebate, which means you are not actually saving money. Or it might only be available on certain car models or loan lengths.
If a lender promises you a rate without pulling your credit, that is a red flag. They are showing you their best-case rate, not your rate. If a lender says they can may provide you a rate before you have been pre-approved, they are not being honest about how lending works.
Watch out for loans that let you skip a payment or defer your first payment — these sound like a benefit, but they just move interest to the end of the loan and cost you more overall. And be cautious of loans with a balloon payment at the end, where you owe a large lump sum when the loan is done. These can trap you into refinancing at a higher rate if you cannot pay the balloon.
How to compare rate offers side by side
When you get quotes from different lenders, write down the interest rate, the loan term (in months), the monthly payment, and the total amount of interest you will pay over the life of the loan. The total interest is what matters most — it shows you the true cost of borrowing.
Make sure you are comparing the same loan for the same car. If one lender is quoting you for a $25,000 loan over 48 months and another is quoting you for $24,000 over 60 months, the rates are not directly comparable. Ask each lender for a Loan Estimate or Truth in Lending disclosure, which is a standardized form that shows the rate, term, monthly payment, and total interest in the same format for every lender.
Once you have chosen a lender and a rate, lock it in if the lender offers a rate lock. A rate lock means the lender promises to hold that rate for a set number of days (usually 30 to 60) while you finish buying the car. Without a rate lock, the lender can change the rate if market conditions change or if you do not close the loan quickly.
Frequently Asked Questions
Does checking my credit score hurt my credit?
Checking your own credit report does not hurt your score. When a lender pulls your credit to make a lending decision, that is called a "hard inquiry" and it lowers your score by a few points for a few months. Multiple hard inquiries for auto loans within 14 days count as one inquiry, so shopping around does not damage your score as much as you might think.
Can I get a low rate if I have bad credit?
You can get a loan with bad credit, but the rate will be higher than what someone with good credit pays. Online lenders and credit unions sometimes offer better rates for lower credit scores than banks do. You can also improve your chances by putting down a larger down payment, choosing a shorter loan term, or adding a co-signer with better credit.
What is the difference between APR and interest rate?
The interest rate is what you pay to borrow the money. The APR (annual percentage rate) includes the interest rate plus other costs like origination fees and insurance. When comparing loans, look at the APR, not just the interest rate, because it shows the true cost of borrowing.
Should I pay off my car loan early to save on interest?
Paying off early saves you interest, but check your loan documents first — some loans have a prepayment penalty that charges you a fee if you pay off early. If there is no penalty, paying extra toward the principal each month or making one large payment when you can will lower your total interest cost.
Why did the dealership offer me a different rate than my pre-approval?
Dealerships sometimes shop your process to lenders after you have already been pre-approved elsewhere. If they offer you a higher rate, ask them to match your pre-approval rate. If they cannot, you can stick with your original pre-approval and tell the dealer to use that financing instead.