what is the average interest rate on a car loan

If you’re thinking about financing a new or used car, one of the first questions that probably comes to mind is, what is the average interest rate on a car loan? It’s a great starting point, as this number gives you a general idea of what to expect. However, the rate you’re actually offered can be quite different from the average. It’s a personal number, shaped by your unique financial picture, the type of car you want, and the overall economic climate.

What is the average interest rate on a car loan?

As of mid-2024, average auto loan interest rates generally fall between 6% and 9% for borrowers with good credit. For new cars, the average tends to be on the lower end of that range, while used car loans often come with higher rates. It’s important to remember that these are just national averages. The rate you see advertised by a manufacturer or bank is typically the very best rate reserved for those with exceptional credit scores.

What determines your personal car loan rate?

Lenders look at several key factors to decide your interest rate. Your credit score is the biggest one; a higher score almost always means a lower rate because you’re seen as less of a risk. The loan term also matters. While a longer-term (like 72 months) might give you a smaller monthly payment, it often comes with a slightly higher interest rate compared to a shorter 36 or 48-month loan. Finally, the car’s age plays a role—used cars almost always have higher financing costs than brand-new ones.

How to secure a better interest rate

Feeling like the average rate is out of reach? Don’t worry, there are steps you can take to improve your position. First, check your credit report for any errors and work on improving your score by paying down other debts. Next, get pre-approved for a loan from your bank or credit union before you even step onto a dealership lot. This gives you a bargaining chip and a baseline to compare the dealer’s financing offer against. Finally, consider making a larger down payment. A bigger upfront investment reduces the amount you need to borrow and can help you qualify for a more favorable rate.

While knowing the average car loan interest rate is helpful, your focus should be on securing the best possible rate for your own situation. By understanding the factors that lenders care about and taking proactive steps to strengthen your application, you can drive away with a loan that feels comfortable for your budget.