Car loan interest rates depend on your credit score, the loan term, the vehicle age, and the lender you choose
The interest rate you receive on a car loan is not set by any single authority — it varies by lender and by your individual financial profile. A borrower with a credit score above 750 might receive a rate around 4% to 6% from a bank, while someone with a score below 620 could see rates of 10% to 18% or higher from the same lender. The difference between these rates means thousands of dollars over the life of the loan.
Interest rates also shift based on whether you are buying a new car or a used one, how long you want to borrow for, and what type of lender you approach — a credit union, bank, online lender, or the dealership's financing arm. Rates change week to week based on broader economic conditions, so the number you see today will not be the number you lock in next month.
Key Takeaways
- Your credit score is the single largest factor in the rate you receive; scores above 750 typically receive rates under 7%, while scores below 620 often face rates above 10%.
- New cars usually carry lower interest rates than used cars from the same lender, and rates drop further for vehicles less than three years old.
- Loan term length affects your rate: a 36-month loan typically carries a lower rate than a 72-month loan from the same source.
- Credit unions and banks often offer lower rates than dealership financing, but you must shop multiple lenders to compare actual offers rather than advertised rates.
- The rate you see advertised is not the rate you will receive unless your financial profile matches the lender's best-case scenario.
How 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, so the lender charges you less interest to offset that lower risk. A lower score signals missed payments or high debt, so the lender charges more interest to compensate for the higher chance you will default.
Most lenders use one of three credit scoring models: FICO, VantageScore, or their own internal model. The ranges vary slightly, but the pattern is consistent. A FICO score of 781 to 850 typically receives rates 2 to 3 percentage points lower than a score of 661 to 680. That difference on a $30,000 loan over 60 months can mean $3,000 to $4,000 in additional interest paid.
You can check your credit score free through AnnualCreditReport.com, which is the only federally authorized site for free credit reports. Knowing your score before you shop for a loan helps you understand what rate range to expect and whether it makes sense to delay your purchase while you work to improve your score.
New versus used car rates
New cars almost always carry lower interest rates than used cars. A new vehicle has a warranty, a known maintenance history, and predictable depreciation, so lenders see less risk. A used car has an unknown history, higher mileage, and less predictable repair costs, so lenders charge more to protect themselves.
The age of a used car matters significantly. A vehicle that is one to three years old typically receives a rate only slightly higher than a new car. A vehicle that is five to seven years old might see a rate 1 to 2 percentage points higher. A vehicle that is ten years or older may face rates 3 to 5 percentage points higher than a comparable new car, or some lenders may decline to finance it altogether.
Mileage also affects the rate. A five-year-old car with 50,000 miles will receive a better rate than a five-year-old car with 100,000 miles, because lower mileage suggests less wear and a longer remaining lifespan. When you shop for a used car, ask the lender what mileage threshold triggers a rate increase.
Loan term and how it affects your rate
A shorter loan term — say 36 or 48 months — typically carries a lower interest rate than a longer term like 60, 72, or 84 months. The lender faces less risk over a shorter period, so they charge less interest. However, a shorter term means a higher monthly payment, which is why many borrowers choose longer terms despite the higher rate.
The relationship between term and rate is not linear. Moving from 36 months to 48 months might raise your rate by 0.5 percentage points. Moving from 60 months to 84 months might raise it by another 0.75 percentage points. Ask each lender for rate quotes at multiple term lengths so you can see the actual trade-off between monthly payment and total interest paid.
A loan longer than 72 months is sometimes called an "extended auto loan." These loans carry noticeably higher rates and create a situation where you owe more than the car is worth for much of the loan period. This matters if you want to sell or trade the car before the loan ends.
Where you borrow from makes a real difference
Banks, credit unions, online lenders, and dealership financing arms all set their own rates. Credit unions typically offer the lowest rates to their members, especially if you have been a member for several months. Banks offer competitive rates but usually require good credit. Online lenders often serve borrowers with lower credit scores but charge higher rates to offset the risk. Dealership financing is convenient but almost always the most expensive option.
The advertised rate you see — "rates as low as 3.9%" — is a floor, not a typical offer. That rate goes to borrowers with excellent credit, a large down payment, and a new vehicle. Most borrowers receive a rate several percentage points higher. Always request a personalized rate quote from at least three lenders before you decide where to borrow.
Some lenders offer rate discounts for setting up automatic payments from your bank account, or for having direct deposit of your paycheck. These discounts are usually 0.25 to 0.5 percentage points, which is modest but worth asking about. A 0.5 percentage point reduction on a $25,000 loan over 60 months saves roughly $600 in interest.
How down payment size affects your rate
A larger down payment reduces the amount you need to borrow, which lowers the lender's risk. Many lenders offer a rate reduction of 0.25 to 0.5 percentage points if you put down 20% or more of the vehicle's price. Some lenders offer tiered discounts: a slightly better rate at 10% down, and a better rate still at 20% down.
The down payment also affects whether you end up "underwater" on the loan — owing more than the car is worth. A 10% down payment on a depreciating asset means you start the loan already owing more than the vehicle's value. A 20% down payment gives you when ready equity. Lenders price this risk into the rate, so a larger down payment can meaningfully lower your cost.
Current rate ranges by scenario
| Borrower Profile | New Car Rate Range | Used Car Rate Range |
|---|---|---|
| Excellent credit (750+), 20% down, 48-month term | 4.0% to 5.5% | 5.0% to 6.5% |
| Good credit (700–749), 10% down, 60-month term | 5.5% to 7.0% | 7.0% to 9.0% |
| Fair credit (650–699), 5% down, 72-month term | 8.0% to 10.5% | 10.0% to 13.0% |
| Poor credit (below 650), minimal down, 84-month term | 12.0% to 16.0% | 14.0% to 18.0%+ |
These ranges reflect typical offers from banks and credit unions as of early 2025. Rates vary by region, by lender, and by the specific vehicle. Online lenders and buy-here-pay-here dealerships may offer rates outside these ranges. Always request actual quotes rather than relying on these ranges to predict your personal rate.
The rates shown assume you have stable employment and no recent late payments. If you have had a recent bankruptcy, repossession, or foreclosure, lenders may charge rates at the high end of these ranges or decline to lend to you altogether. Some lenders specialize in lending to borrowers with this history, but their rates are typically 3 to 5 percentage points higher than the ranges shown here.
Frequently Asked Questions
Will paying a larger down payment lower my interest rate?
Yes, most lenders offer a rate reduction of 0.25 to 0.5 percentage points if you put down 20% or more. Some lenders also offer smaller discounts at 10% down. The exact discount varies by lender, so ask about it when you request a rate quote.
Can I get a better rate by refinancing after I buy the car?
Yes. If your credit score improves, or if interest rates drop in the broader economy, you can refinance your loan with a different lender. Refinancing makes sense if the new rate is at least 1 to 2 percentage points lower than your current rate, because the closing costs and time involved need to be worth it. Most lenders allow refinancing after you have made at least a few payments.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the money. The APR (annual percentage rate) includes the interest rate plus other costs like origination fees and insurance. The APR is always equal to or higher than the interest rate. Lenders are required to disclose the APR, so use that number when comparing offers between lenders.
Do dealerships offer better rates than banks?
Dealership financing is almost always more expensive than a bank or credit union loan. Dealerships earn money by marking up the rate, so they have an incentive to charge you more. Get pre-approved for a loan from a bank or credit union before you visit the dealership, so you know what rate you may have access to for and can compare the dealership's offer against it.
How much does my income affect my car loan rate?
Income affects whether a lender will approve you at all, but it has little effect on the rate itself. The rate is driven primarily by credit score, vehicle age, loan term, and down payment. A lender wants to see that your income is stable and high enough to cover the monthly payment, but two borrowers with identical credit scores and down payments will receive the same rate regardless of whether one earns $40,000 or $80,000 per year.