What Is the Average Car Loan Interest Rate? (2023)

FAQs

What Is the Average Car Loan Interest Rate? ›

According to Experian, the average rates for this category are 3.51% for new-car loans and 5.38% for used-car loans.

Car Loan APRs by Credit Score

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.

750 is a good credit score that can get you car loans with equally as good rates. They aren't the best, but they are still in the top five. More specifically, you would be able to qualify for apr rates of anywhere from 3% to 6% for a new car loan and 5% to 9% for a used car loan.

In December of 2022, the Fed indicated that it expects the funds rate to fall to 4.1% by the end of 2024 after reaching the 5.1% mark by the end of 2023. If that holds true and the federal interest rate begins to fall, auto loan rates should start to drop shortly after.

Generally, however, a car payment is considered high if it exceeds 10-15% of a person's gross monthly income. This means that if a person earns $3,000 per month, a car payment that is greater than $300-$450 per month may be considered high.

If you take a car loan of $40000 at an interest rate of 4.12% for a loan term of 72 months, then using an auto loan calculator, you can find that your monthly payment should be $628. When the loan term changes to 60 months, the monthly payment on a $40000 car loan will be $738.83.

A 72-month car loan can make sense in some cases, but it typically only applies if you have good credit. When you have bad credit, a 72-month auto loan can sound appealing due to the lower monthly payment, but, in reality, you're probably going to pay more than you bargained for.

Yes, just like the price of the vehicle, the interest rate is negotiable. The first rate for the loan the dealer offers you may not be the lowest rate you qualify for. With dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders.

Why is my APR so high with good credit? ›

Those with higher credit scores pose a lower default risk to issuers, and they tend to land better interest rates. Even if you have a higher interest rate and carry a balance, you can pay less interest on your credit card debt if you make payments whenever you can.

Automotive experts said there's a couple reasons why auto-loan costs are climbing. The Federal Reserve is still raising its benchmark interest rate in its continued fight against inflation, which is simultaneously pushing auto rates higher.

Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate. If you have poorer credit, you can still get a loan, but you will probably have to pay more for it or else find a co-signer.

Your credit score helps lenders decide if you qualify for products like credit cards and loans, and your interest rate. You are one of the 46% of Americans who had a score of 750 or above in 2021, according to credit scoring company FICO. Here's how your 750 credit score can affect your financial life.

You should have a 640 or higher credit score in order to qualify for a $20,000 personal loan. If you have bad or fair credit you may not qualify for the lowest rates. However, in order to rebuild your credit you may have to pay higher interest rates and make on-time payments.

The exact credit score you might need to qualify for a 0% APR loan varies depending on your situation. Many lenders require a minimum score of at least 700. Others require excellent credit scores, such as 720, 750, or even 800.

Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall. Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries.

In terms of the best time of the year, October, November and December are safe bets. Car dealerships have sales quotas, which typically break down into yearly, quarterly and monthly sales goals. All three goals begin to come together late in the year.

Here's a quick look at how a good credit score can benefit you when you're buying a car. Lower interest rates. A good credit score — typically a score of 680 or higher — can help you secure a low interest rate from the dealer. In fact, taking your score from 600 to 780 could halve your rate.

How much should I spend on a car if I make $60,000? If your take-home pay is $60,000 per year, you should pay no more than $750 per month for a car, which totals 15% of your monthly take-home pay.

How much should I spend on a car if I make $40 000? ›

Follow the 35% rule

Whether you're paying cash, leasing, or financing a car, your upper spending limit really shouldn't be a penny more than 35% of your gross annual income. That means if you make $36,000 a year, the car price shouldn't exceed $12,600. Make $60,000, and the car price should fall below $21,000.

With a $1,000 down payment and an interest rate of 20% with a five year loan, your monthly payment will be $768.32/month.

The total interest amount on a $30,000, 72-month loan at 5% is $4,787—a savings of more than $1,000 versus the same loan at 6%.

When browsing your options, keep in mind that financial experts will typically tell you to spend less than 10% of your monthly take-home pay on your car payment. That means if your take-home pay is $3,000 a month, plan to spend no more than $300 on your car payment.

How much is a lease for a $45,000 car? Using our calculator, we input a $5,000 down payment, an assumed $25,000 residual value, an interest rate of 7% and a term of 36 months (three years). It resulted in monthly payment of $606 before taxes.

Although you'll have smaller monthly payments with an 84-month car loan, you'll ultimately pay more in interest. You also risk owing more on the loan than your car is worth and potentially large repair bills. Before choosing a longer auto loan term, consider a shorter term to save more overall.

The 20/4/10 rule encourages consumers to put down at least 20% of the total price of their vehicle, which will lower the overall amount you borrow and reduce the interest you'll pay over the life of the loan. While there are no-money-down car loans, not providing a down payment can cost you more in the long run.

You can pay less interest on a car loan by shopping around for offers, making a large down payment, opting for a shorter loan term, making additional payments and declining extra coverage options.

How to get the lowest APR on a car loan? ›

The higher your credit score, the lower your interest rate. And if you're trying to qualify for the best rate the lender offers, an excellent score is usually required. You can pull your credit score and history from Equifax, Experian and TransUnion or for free at AnnualCreditReport.com.

If you want the best credit card APR possible, you might want to work on improving your credit score first. Once your FICO Score passes 670, your credit will move from “subprime” to “prime.” This means you'll become eligible for prime interest rates.

There is no federal regulation on the maximum interest rate that your issuer can charge you, though each state has its own approach to limiting interest rates.

The average monthly payment for a new vehicle hit a record $730 in the first quarter, up from $656 in 2022. And 16.8 percent, or about 1 in 6 of them, are paying $1,000 or more a month — also a new all-time high.

Cost to finance to remain high in the coming year

The concurrent increase of rates and decrease in vehicle prices will likely remain consistent through 2023. Rates are expected to continue to increase, explains McBride, “An active Fed will mean further increases in auto loan rates.”

Vehicles leases offer inflation protection

Residual value is the vehicle's deemed value at the end of the lease term — set at the start of the lease. Your buyout is set at the time you negotiate the lease and this is why buying out a lease right now is one way to actually “beat inflation”.

The company doesn't list a minimum credit score requirement for a Tesla auto loan or lease. However, borrowers with good or excellent credit have a higher chance of qualifying and getting a lower interest rate.

What credit score do I need to finance a Tesla? Tesla does not state a minimum credit score for financing. However, as with other brands, you will have much better luck securing a lower APR if you have a better score. Try aiming for a credit score of 720 or higher to get the best possible rate.

Documentation Requirements. Whether your credit score is 600 or 800, you will need to provide your lender with some documentation proving your ability to repay your loan. This includes: Proof of employment via a pay stub - you generally need to make at least $1,500 per month to qualify for an auto loan.

How rare is 900 credit score? ›

What percentage of the population has a credit score over 900? Only about 1% of people have a credit score of 850. A 900 credit score can be thought of as fairly unrealistic.

For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2022, the average FICO^® Score^☉ in the U.S. reached 714.

Your 800 FICO^® Score falls in the range of scores, from 800 to 850, that is categorized as Exceptional. Your FICO^® Score is well above the average credit score, and you are likely to receive easy approvals when applying for new credit. 21% of all consumers have FICO^® Scores in the Exceptional range.

You will likely need a minimum credit score of 660 for a $50,000 personal loan. Most lenders that offer personal loans of $50,000 or more require fair credit or better for approval, along with enough income to afford the monthly payments.

For a loan of 50K, lenders usually want the borrower to have a minimum credit score of 650 but will sometimes consider a credit score of 600 or a bit lower. For a loan of 50K or more, a poor credit score is anything below 600 and you might find it difficult to get an unsecured personal loan.

You can borrow $50,000 - $100,000+ with a 720 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

A 750 FICO^® Score is above the average credit score. Borrowers with scores in the Very Good range typically qualify for lenders' better interest rates and product offers. 25% of all consumers have FICO^® Scores in the Very Good range.

750 is a good credit score that can get you car loans with equally as good rates. They aren't the best, but they are still in the top five. More specifically, you would be able to qualify for apr rates of anywhere from 3% to 6% for a new car loan and 5% to 9% for a used car loan.

What Percentage of the Population Has a Credit Score Over 700? The same data referenced above also reveals the percentage of the population with a score of over 700. According to FICO.com, approximately 59.2 percent of the U.S. population has a credit score range between 700 to 850.

An interest rate of 5% is pretty good for a car loan! Generally, to qualify for that rate, you must have good credit, meaning a score in the range of 700-749. So bravo! However, if you were to wait to buy a car and work on improving your credit score, you may be able to get an even better deal.

Is 3.5% a good rate for a car loan? ›

What Is the Average Rate for Good Credit Auto Loans? According to data from the Q4 2021 Experian State of the Automotive Finance Market report, the average interest rate for good credit auto loans is around 3.5% for new car purchases and 5.4% for used vehicle purchases.

If you can get a rate under 6% for a used car, this is likely to be considered a good APR.

“An APR of 20% is a bit steep, and you could probably get better financing terms from a bank or credit union. Dealerships tend to offer more expensive loans because of interest rate markups. When you choose to finance a car through a dealer, they basically shop for you by gathering offers from various lenders.

Yes, just like the price of the vehicle, the interest rate is negotiable. The first rate for the loan the dealer offers you may not be the lowest rate you qualify for. With dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders.

Borrowers with an 735 credit score are considered to be relatively low risk when it comes to paying money back. Statistical default rates range from 4.6% for consumers in the 660-679 FICO Score range to 1.9% for those in the 720-739 range.

The total interest amount on a $30,000, 72-month loan at 5% is $4,787—a savings of more than $1,000 versus the same loan at 6%. So it pays to shop around to find the best rate possible.

If you're buying a new car at an interest rate of 2.9% APR, you may be getting a bad deal. However, whether or not this is the best rate possible will depend on factors like market conditions, your credit background, and what type of manufacturer car incentives there are at a given point in time on the car you want.

Automotive experts said there's a couple reasons why auto-loan costs are climbing. The Federal Reserve is still raising its benchmark interest rate in its continued fight against inflation, which is simultaneously pushing auto rates higher.

If your credit score is in the 600 to 660 range, a car loan with an interest rate of 8% is good! However, if your score is higher, then an 8% interest rate is on the expensive side.

Is 10% interest on a car bad? ›

Keep in mind that, if you agree to a loan with a 10% interest rate, you will likely be paying thousands of dollars in interest over the course of the loan. If you can wait to take out a loan until you've improved your credit score, that might be the best (and least expensive) choice.

Ultimately, a 715 credit score will not be a barrier to purchasing a car, but it won't secure you the best annual percentage rates — those below 5% for a new car — which will likely go to people with a score above 780.