Current car loan interest rates depend on your credit score, the loan term, and whether the vehicle is new or used
The average car loan interest rate in the United States ranges from roughly 4% to 10%, but your actual rate depends almost entirely on your credit profile and the lender you choose. Someone with excellent credit (typically a score above 750) might receive an offer around 4% to 6%, while someone with fair or poor credit could see rates of 8% to 12% or higher. The difference between these rates costs thousands of dollars over the life of the loan.
Interest rates also shift based on how long you borrow for. A 36-month loan usually carries a lower rate than a 72-month loan from the same lender, because the lender takes on less risk when you pay back faster. New cars typically may have access to for lower rates than used cars, since the vehicle itself is worth more and depreciates more slowly.
Your rate also depends on where you borrow. Banks, credit unions, and dealership financing arms all price differently. Credit unions often offer the lowest rates to their members, sometimes 1% to 2% lower than banks. Dealerships sometimes advertise low rates but may require you to accept less favorable terms elsewhere (like a higher down payment or shorter loan term) to get them.
Key Takeaways
- Your credit score is the single biggest factor in your rate — a 100-point difference in your score can mean 2% to 3% difference in your interest rate.
- Credit unions typically offer lower rates than banks or dealership financing, so checking your local credit union before visiting a dealership can save you hundreds of dollars.
- A 36-month loan will carry a lower rate than a 60-month or 72-month loan, even though the monthly payment is higher.
- New cars may have access to for lower rates than used cars, and rates vary significantly by vehicle age and mileage.
- You can shop rates from multiple lenders without damaging your credit score if you do it within 14 days — each inquiry in that window counts as one hard inquiry.
How your credit score determines your rate
Lenders use your credit score as the primary measure of risk. A higher score signals that you have paid past debts on time and owe less relative to your available credit. The three major credit bureaus (Equifax, Experian, and TransUnion) calculate scores between 300 and 850, and most lenders use the FICO score model.
The relationship between score and rate is not linear. The difference between a 620 and a 680 score might be 3 percentage points, while the difference between a 750 and an 800 might be only 0.5 percentage points. This means if your score is below 700, improving it before you explore for a loan can save you significantly more than waiting until after you have already locked in a rate.
You can check your own credit score for free through AnnualCreditReport.com, which is the only federally authorized source for free credit reports. Many banks and credit card issuers also provide free score monitoring to their customers. Knowing your score before you shop for a loan lets you understand what rate range to expect and whether it makes sense to delay your purchase to improve your score first.
Why loan term length affects your interest rate
A longer loan term means the lender's money is at risk for more years. To compensate for that risk, lenders charge a higher interest rate on 60-month and 72-month loans than on 36-month or 48-month loans. The difference is usually 0.5% to 1.5%, which sounds small but compounds significantly over time.
On a $25,000 loan, the difference between a 5% rate on a 48-month term and a 6% rate on a 72-month term is roughly $2,500 in total interest paid, even though the monthly payment on the longer loan is lower. This is why lenders and financial advisors often recommend the shortest loan term you can afford — you pay less interest overall, even if the monthly payment is higher.
However, stretching the loan term does make sense in some situations. If keeping your monthly payment low is necessary to avoid missing payments, a longer term at a higher rate is better than a shorter term you cannot afford. The worst outcome is defaulting on the loan, which damages your credit far more than paying extra interest.
New cars versus used cars and their rate differences
New cars almost always may have access to for lower interest rates than used cars. Lenders see new vehicles as lower risk because they have full manufacturer warranties, predictable maintenance costs, and slower depreciation. A new car loan might carry a 4% to 6% rate, while a used car loan from the same lender might be 6% to 9%.
The age and mileage of a used car matter significantly. A three-year-old used car with 40,000 miles will may have access to for a better rate than a seven-year-old car with 100,000 miles. Some lenders set hard cutoffs — they will not finance vehicles older than 10 years or with more than 150,000 miles, regardless of your credit score.
Certified pre-owned (CPO) vehicles, which are inspected and warrantied by the dealership or manufacturer, sometimes may have access to for rates closer to new car rates. If you are considering a used car, asking the lender what rate they would offer for a CPO vehicle versus a standard used vehicle can help you decide whether the extra cost of CPO is worth it.
Where to shop for the best rate
Credit unions typically offer the lowest rates to their members. If you belong to a credit union, check their auto loan rates before you visit a dealership. Credit union rates are often 1% to 2% lower than bank rates, which on a $25,000 loan means $250 to $500 per year in savings.
Banks and online lenders are the next tier. Large national banks like Chase and Bank of America publish their rates online, and you can see what you might may have access to for without a hard inquiry. Online lenders like LendingClub and Upstart also offer car loans, though their rates vary widely based on your credit profile.
Dealership financing should be your last stop, not your first. Dealerships work with multiple lenders and can sometimes offer competitive rates, but they also earn a commission on the loan, which means they have an incentive to steer you toward a higher rate. If you arrive at the dealership with a pre-approved loan from a bank or credit union, you can use that as a negotiating point. Many dealerships will match or beat an outside offer to earn your business.
How to shop rates without damaging your credit
When you explore for a car loan, the lender performs a hard inquiry on your credit report. Each hard inquiry typically lowers your score by a few points. However, the credit scoring models recognize that car shopping involves multiple lenders, so they treat all auto loan inquiries made within 14 days as a single inquiry for scoring purposes.
This means you can contact your credit union, two or three banks, and an online lender within a two-week window, and your credit score will be affected as if you applied once, not five times. After 14 days, new inquiries count separately. This is why financial advisors recommend doing all your rate shopping in a concentrated period rather than spreading it out over weeks or months.
When you contact a lender, ask whether they can provide a rate quote with a soft inquiry first. A soft inquiry does not appear on your credit report and does not affect your score. Many lenders offer this as a preliminary step so you can see what range you might may have access to for before you commit to a hard inquiry.
What affects your rate beyond credit score and term
Your debt-to-income ratio (how much you owe relative to what you earn) influences your rate. If you already carry high credit card balances or other loans, lenders may charge you a higher rate or decline to lend to you altogether. Paying down existing debt before you explore for a car loan can improve both your credit score and your debt-to-income ratio.
Your down payment also matters. A larger down payment reduces the lender's risk, and some lenders offer a slightly lower rate if you put down 20% or more. The down payment also reduces the amount you need to borrow, which means less interest overall.
Employment history and income stability can play a role, though most lenders focus more on your credit score and income level than on how long you have been at your current job. Self-employed borrowers sometimes face slightly higher rates because their income is considered less stable, but this varies by lender.
Frequently Asked Questions
What is considered a good car loan interest rate?
A good rate depends on your credit score and the current market. If your score is above 750, anything below 5% is generally considered good. If your score is between 650 and 750, a rate below 7% is reasonable. Below 650, rates above 8% are common, but shopping multiple lenders can still save you 1% to 2%.
Can I negotiate my interest rate after I have been approved?
You can sometimes negotiate before you sign the final paperwork. If you received a better rate offer from another lender after your dealership approved you, bring that offer to the dealership and ask them to match it. Once you have signed, refinancing through a different lender is your only option, and it involves a new hard inquiry and process.
Does paying a larger down payment lower my interest rate?
Some lenders offer a slightly lower rate with a larger down payment, but the difference is usually small (0.25% to 0.5%). The bigger benefit of a larger down payment is that you borrow less money, so you pay less total interest regardless of the rate.
What happens to my interest rate if I have no credit history?
Lenders view no credit history as high risk, similar to poor credit. You may face rates of 10% or higher, or lenders may decline you entirely. Adding a co-signer with good credit can help you may have access to for a lower rate. Alternatively, some credit unions offer credit-builder loans specifically for people with no credit history.
Should I refinance my car loan if rates have dropped?
Refinancing makes sense if the new rate is at least 1% to 2% lower than your current rate and you have enough loan term remaining to recoup the refinancing costs (process fees, title transfer, etc.). If you are within the first year or two of your loan, refinancing is more likely to save you money than if you are already halfway through.