what is average interest rate on a car loan

When you start shopping for a new or used car, one of the biggest questions on your mind is likely about the monthly payment. And a huge part of that payment comes down to the interest rate you secure. Getting a clear picture of current rates helps you set a realistic budget and know a good deal when you see one. So, exactly what is average interest rate on a car loan? The answer isn’t a single number, as it varies significantly based on your credit, the loan term, and whether the car is new or used.

What is the average interest rate on a car loan right now?

As of mid-2024, average auto loan interest rates generally fall within a range. For borrowers with good to excellent credit scores (typically 720 and above), you might see average rates between 5% and 7% for a new car. For a used car, the average rates are often higher, usually ranging from 7% to 10%. It’s crucial to remember these are just averages. Your individual rate could be lower or significantly higher depending on your financial profile.

What influences your personal car loan rate?

Lenders look at several key factors to determine the interest rate they offer you. Your credit score is the most influential one. A higher score signals to lenders that you’re a reliable borrower, which earns you a lower rate. The loan term also matters; a shorter-term loan, like 36 months, often has a lower rate than a longer 72-month loan. Finally, the age of the vehicle plays a role. Loans for new cars almost always have lower interest rates than loans for used cars.

How you can secure a better interest rate

Fortunately, you have some power to improve the rate you’re offered. First, check your credit report for any errors and work on improving your score by paying down other debts. Next, try to get pre-approved for a loan from your bank or credit union before you even step onto the dealership lot. This gives you a bargaining chip and a baseline to compare the dealer’s financing against. Finally, consider making a larger down payment. A bigger down payment reduces the amount you need to borrow and the lender’s risk, which can lead to a more favorable rate.

While knowing the average car loan interest rate is a great starting point, your personal rate is what truly counts. By understanding the factors that affect it and taking steps to strengthen your application, you can position yourself to secure the best possible deal and drive away with a payment that fits comfortably in your budget.