When you search "average APR for car loan," you'll be met with some numbers, but they mean nothing without an understanding of your own financial situation and how car loans work.
APR stands for annual percentage rate, and it refers to the cost of your loan, which includes the interest rate and additional fees. The APR of your car loan is largely dependent on your credit score. In most cases, the higher your credit score is, the lower your APR will be.
You won’t know your exact loan APR until you start applying for loans. However, it's important to understand what rate you might qualify for before starting the car buying process.
Looking for an auto loan that works for you? Easily compare rates from lenders below.
What Affects an APR for Car Loans?
There are a few factors that contribute to the APR of your car loan. One of the biggest factors is your credit score, which determines your “creditworthiness.” In other words, your credit score indicates to lenders how likely you are to pay back the money you owe.
In general, borrowers with bad credit get a higher APR and borrowers with good credit get a lower APR. This is because lenders see low-credit borrowers as risky or more likely to default on their loans than those with good credit. You usually want to choose a loan with the lowest APR for your situation, because it’s the cheapest option for borrowing money.
The basic scale for credit scores is:
- Bad: 300-629
- Fair: 630-689
- Good: 690-719
- Excellent: 720-850
Keep in mind that some lenders won't even offer a loan to borrowers with bad credit. If you have poor credit, you might have to find a subprime lender, or a lender with more flexible eligibility requirements, to take out a car loan.
Another factor that impacts the APR of car loans is the type of car you finance. In most cases, new cars have lower APRs while used cars have higher APRs. Shopping around and comparing loans can help you get the best loan terms for your financial situation.
Car Loan APRs by Credit Score
As of 2022, the average interest rate for car loans was 4.07 percent for new cars and 8.62 percent for used cars. However, these rates are just averages—you might get a higher or lower rate based on several personal factors, like your lender and the age of your vehicle.
To understand what car loan interest rate you might qualify for based on your credit score, check out the average rates below for different credit tiers:
- Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used.
- Good (700 - 749): 4.03 percent for new, 5.53 percent for used.
- Fair (650 - 699): 6.75 percent for new, 10.33 percent for used.
- Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
Why Do Average Interest Rates Vary for New and Used Vehicles?
Usually, used car loan interest rates are a little higher than the rates for new car loans. That’s because used cars tend to be less reliable than new cars. Charging a higher interest rate protects the lender in case your car breaks down and you can no longer drive it, which would force you to default on the loan.
Most lenders also charge lower APRs on new car loans because new cars are more valuable. If you’re buying a brand-new car with a high price tag, there’s a greater chance that you will need to borrow more money. In this situation, the loan is much more profitable for the lender, so you often get rewarded with a lower APR.
Average Rates for Auto Loans by Lender
Even with a solid credit score, you'll want to shop around for your auto loan and compare a few different options. Average APRs for car loans vary from lender to lender. Here are some example rate ranges according to Value Penguin.
- Alliant: 3.24 - 18.19 percent
- CapitalOne: 3.99 - 13.98 percent
- PenFed: 1.99 - 18 percent
- PNC Bank: 2.79 - 14.99 percent
How Does a Low APR Save Me Money?
The APR of your car loan has a direct impact on how much you will pay to borrow the money over the lifetime of the loan. That’s why choosing a loan with a low APR is a smart financial move. Finding the lowest rate usually involves comparing several loans before you sign a loan agreement.
You should also consider choosing a short-term loan to save the most money and get the lowest APR. Lenders offer charge lower APRs on shorter term loans because borrowers will take less time to repay the loan. While longer loans can provide lower monthly payments, they cost more in the long run.
Here’s an example. A five-year loan at $28,800 with a 4.96 percent APR will accrue $3,778 over the life of the loan. The same loan amount and term with an 11.93 percent APR will accrue $9,577.
For borrowers with poor credit, that same loan amount and term with an APR of 23.81 percent will cost them $20,721 in interest over the life of the loan. Therefore, a low APR could help you save over $15,000 throughout the term of a car loan.
Elizabeth Rivelli
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
