When you’re looking to buy a car, the focus is often on the sticker price. But the interest rate on your loan can have a huge impact on your monthly payment and the total amount you end up paying. It’s a crucial piece of the puzzle that can make a car more or less affordable over time. So, what is a good interest rate on a car? The answer isn’t the same for everyone, as it depends heavily on your financial health and the current market.
What is a good interest rate on a car today?
As of late 2023 and into 2024, interest rates have been higher than they were a few years ago. For a borrower with excellent credit (a score of 720 or above), a good interest rate on a new car might be anywhere from 5% to 7%. For a used car, you might see rates between 7% and 9% for top-tier credit. If your credit is average, expect rates to be higher, potentially in the double digits. The key is to compare the rate you’re offered to the national averages for your credit tier.
How your credit score shapes your rate
Your credit score is the single most important factor in determining your car loan interest rate. Lenders use it to gauge risk. A high score signals that you’re a reliable borrower, which earns you a lower, more favorable rate. A lower score suggests more risk to the lender, and they offset that risk by charging a higher interest rate. Before you even start car shopping, it’s a great idea to check your credit report so you know where you stand.
Tips for securing a better interest rate
Fortunately, you’re not stuck with the first offer you receive. There are several steps you can take to improve your position. First, shop around for loans. Get pre-approved from a bank or credit union before visiting the dealership, as this gives you a strong negotiating tool. Second, consider making a larger down payment. A bigger down payment reduces the amount you need to borrow and shows the lender you’re seriously invested. Finally, a shorter loan term, like 48 months instead of 72, will often come with a lower interest rate, saving you money on the total cost of the loan.
Finding a good interest rate is all about preparation and perspective. By knowing your credit score, researching current averages, and getting pre-approved, you can confidently secure a loan that fits your budget and keeps your overall costs manageable.
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