Car loan interest rates vary by lender, credit score, and loan term, but most borrowers see rates between 4% and 10% right now
The average APR (annual percentage rate) on a new car loan sits around 6% to 7% for borrowers with good credit, though this shifts month to month based on what the Federal Reserve does with interest rates. If you have excellent credit, you might see 3% to 5%. If your credit is fair or poor, expect 8% to 12% or higher. Used car loans typically run 1% to 2% higher than new car loans at the same lender.
Your actual rate depends on three things: your credit score, the lender you choose, and how long you want to borrow for. A 36-month loan usually carries a lower rate than a 72-month loan from the same bank. Credit unions often beat bank rates by a full percentage point or more, even for members with average credit.
Key Takeaways
- New car loans for borrowers with good credit currently average 6% to 7% APR, while used car loans run about 1% to 2% higher at the same lender.
- Your credit score is the single biggest factor in your rate — a score above 750 can save you 3% to 4% compared to a score below 650.
- Credit unions typically offer rates 0.5% to 1.5% lower than banks and online lenders, even if you have average credit.
- Shorter loan terms (36 to 48 months) carry lower rates than longer terms (60 to 84 months), but your monthly payment will be higher.
How your credit score affects your rate
Lenders use your credit score to decide how much risk you represent. A higher score means you have paid bills on time in the past, so the lender charges you less to borrow. The difference is substantial: a borrower with a 750+ score might get 4% on a new car, while a borrower with a 620 score at the same lender might pay 11%.
Most lenders use the FICO score, which ranges from 300 to 850. Anything above 700 is considered good; above 750 is very good. If your score is below 650, you will see the highest rates available, and some lenders may decline you entirely. Checking your own credit score before you shop for a loan lets you know what range to expect and whether it makes sense to wait a few months while you pay down debt or dispute errors.
Where the rate differences come from
Banks, credit unions, and online lenders all set their own rates based on what they pay to borrow money themselves, plus what they need to earn as profit. Credit unions are member-owned nonprofits, so they can pass savings back to members in the form of lower rates. Banks need to make more profit for shareholders, so their rates are typically higher. Online lenders vary widely — some are very competitive, others charge premium rates to offset the risk of lending to borrowers they have never met in person.
The Federal Reserve's interest rate decisions ripple through the whole market. When the Fed raises rates, car loan rates rise within weeks. When the Fed cuts rates, lenders eventually lower their rates too, though not always by the same amount. This is why the "average" rate you see quoted changes every few months.
How loan length changes your rate
A 36-month loan (3 years) will carry a lower APR than a 60-month loan (5 years) from the same lender, because the lender has less time to wait for their money back and less risk that something will go wrong. The difference is usually 0.5% to 1.5%, so a 36-month loan at 5% might become a 60-month loan at 6% or 6.5%.
However, the monthly payment on a 36-month loan is much higher. If you borrow $25,000 at 6% for 36 months, your payment is roughly $738 per month. The same $25,000 at 6% for 60 months drops to roughly $483 per month. The longer loan costs you more in total interest, but the monthly hit to your budget is smaller. This is why many borrowers choose longer terms even though the rate is higher.
New cars versus used cars
New cars almost always have lower rates than used cars. A new car loan might be 5% while a used car loan is 7% at the same credit union. Lenders see new cars as lower risk because they are less likely to break down during the loan period, and they hold their value more predictably. A used car with 80,000 miles on it is a bigger gamble.
The age of the used car matters too. A 3-year-old used car will have a better rate than a 10-year-old used car. Some lenders have a cutoff — they will not finance cars older than 10 or 12 years, regardless of condition. If you are buying an older used car, call lenders ahead of time to confirm they will finance it before you fall in love with the vehicle.
Where to shop for the best rate
You should get rate quotes from at least three different sources: your bank, a credit union (if you are a member or can join one), and one online lender. Each quote is free and does not hurt your credit score if you do it within 14 days — the credit bureaus treat multiple car loan inquiries as a single shopping trip.
Credit unions are worth the effort even if you are not currently a member. Many credit unions let you join based on where you work, where you live, or membership in an organization you belong to. The rate savings often pay for the membership fee within the first year. If you cannot join a credit union, compare your bank's rate to at least two online lenders like LendingClub, Lightstream, or Upgrade.
What happens after you get the loan
Once you sign the loan documents, your APR is locked in for the life of the loan. It will not change if interest rates rise or fall in the market. You will make monthly payments that include both principal (the money you borrowed) and interest (what the lender charges you). Early in the loan, most of your payment goes to interest. Late in the loan, most goes to principal.
If you pay off the loan early, you will save money on interest, but some lenders charge a prepayment penalty. Ask about this before you sign. Most lenders do not charge a penalty, but it is worth confirming. If you refinance the loan later (borrow money from a new lender to pay off the old one), you will get a new APR based on your credit score and the market rate at that time.
Frequently Asked Questions
Is 6% APR a good rate right now?
For a new car with good credit, 6% is roughly average. If you have a score above 720, you should shop around — you may find 4% to 5%. If your score is below 680, 6% is actually quite good and worth accepting. Compare at least three lenders before deciding.
Why is my rate higher than the advertised rate I saw online?
Advertised rates are usually the best rate available, reserved for borrowers with excellent credit (750+) and new cars. Your actual rate depends on your specific credit score, income, debt, and the car you are buying. The lender will give you a personalized quote once you provide details.
Can I negotiate my interest rate with the lender?
You cannot negotiate the rate itself, but you can shop around and choose the lender offering the lowest rate. Some lenders offer rate discounts if you set up automatic payments from a checking account or if you are a long-time customer. Ask about these discounts when you get your quote.
What if I have bad credit — can I still get a car loan?
Yes, but you will pay a higher rate, typically 10% to 15% or more. Some lenders specialize in bad credit loans. You may also need a larger down payment or a co-signer. Credit unions are often more flexible with lower credit scores than banks are.
Does paying a larger down payment lower my interest rate?
No. Your interest rate is set based on your credit score, the lender, and the loan term. A larger down payment lowers the amount you borrow and therefore the total interest you pay, but it does not change the percentage rate itself.