A Guide to Car Loan Rates

Did you know that the average price of a brand-new car starts at around $36,000? Even if you’re more into used cars, we’re talking about a starting price from $20,000 or so. 

Of course, that’s just the beginning of your total auto costs. After all, there’s a high probability that you won’t have that sort of cash lying around, so you’ll need to get a car loan. Welcome to the wide world of car loan rates.

Since your car’s interest rate is the next most costly part of buying a car after your down payment. Therefore, if you could get the best loan rates, you can save huge amounts of money on your car payments.

If you’re in the market for a new car loan, then no worries. You’ve come to the right place. Read on for our full breakdown of the different loan rates available on the market for car financing.

What Is a Car Loan?

When you finance a vehicle, what exactly do you get? Most individuals who purchase a vehicle do not always have the funds to pay in full upfront. Instead, they decide to take out financing to assist them in covering the cost of the vehicle.

This is a loan for a car. Auto loans are agreements with financial institutions. Like banks, credit unions, dealerships, and financing firms. Those will allow you to borrow money to pay for your vehicle in exchange for repaying that money with interest over a period of time.

Sure, automobile financing is seldom free. Yet, it may be a valuable tool in enabling you to drive away from your dealership in the vehicle you want.

Car Financing 101

The procedure of obtaining a vehicle loan does not take much time.

If you are interested in obtaining an auto loan, the procedures outlined below may assist you in getting behind the wheel of a new vehicle. 

Determine Your Budget

Before you begin looking for loans, you need to figure out how much you can afford to spend on a vehicle.

Remember that your monthly payment number will include both principal and interest. However, you should also take into account any fees and payments paid at the time of purchase. Such as a down payment, taxes, and title fees, among other things.

Shop Around for an Auto Loan

There are a plethora of various offers available to you. From car dealers and manufacturers, banks, credit unions, and internet lenders, among others.

It doesn’t hurt to browse around to ensure you receive the greatest price possible on your purchase.

Always Negotiate

Once you have started the application procedure for the loan, you should consider discussing the conditions of the loan and the price of the car.

A lower price or possibly a lower interest rate may be available to you if you shop around for the vehicle. It’s not a bad idea to inquire.

Get Your Preapproval

Following your agreement on the financing conditions, you will be formally authorized for the loan. And you will be able to proceed with signing the papers and receiving the keys to your new vehicle.

Be careful to double-check all of the documentation. It’ll help you verify that it accurately represents the conditions that you previously agreed upon. You can always depend on a Plenti car loan to give you all the details you need in advance.

Car Loan Rates Based on Credit Scores

High-credit-score consumers are those with credit scores of 760 or higher. They are considered prime loan applicants. They can be approved for interest rates as low as 3%. In contrast, consumers with lower credit scores are considered riskier investments for lenders. Those typically pay higher interest rates, sometimes as high as 20%.

Indicative of a consumer’s bad financial history are scores below 580. This may include debt defaults, late monthly payments, or even bankruptcy.

Consumers with great credit profiles generally pay interest rates lower than the 60-month average of 4.21%. In contrast, those with poor credit profiles can anticipate paying rates much higher than the average.

Consumers who get car loans have an average credit score of 711. Consumers in this price category can anticipate paying rates similar to the national average of 5.27%.

When considered in conjunction with other factors relevant to an applicant’s auto loan request, such as liquid capital, the cost of the vehicle, and the applicant’s overall ability to repay the loan amount, credit scores indicate to lenders whether or not it is risky to extend a loan to the applicant in question.

An individual’s FICO credit score, which ranges from 300 to 850, is calculated by examining their payment history, outstanding debt, and the amount of time they have had the privilege of using a credit line.

Auto Loan Rates by Term Length

Most community banks provide payment arrangements ranging from 24 to 72 months in length, with shorter-term loans often having cheaper interest rates than longer-term loans. Auto loans typically have 63 months, but loans with terms of 72 and 84 months are becoming more prevalent.

The higher annual percentage rates (APRs) of longer-term auto loans, on the other hand, may result in exorbitant interest charges that cause borrowers to become “upside-down”—that is, to owe more on the auto loan than the vehicle really costs—in the long run.

A deeper look at typical interest rates across a range of loan periods for individuals with the best credit is provided below. This is the auto loan term compared with the average interest rate.

  • 36 Month: 4.21%
  • 48 Month: 4.31%
  • 60 Month: 4.37%
  • 72 Month: 4.45%

Even though longer-term loans have lower monthly payments, the additional months of collecting interest may eventually offset the advantage of their reduced short-term cost, particularly for consumers buying an older used vehicle whose value would decline rapidly.

Terms of 72 and 84 months are also available, although they are often reserved for higher loan amounts or brand new vehicles.

Consider the following example: If a $25,000 loan is paid back over the period of 48 months at a 4.5 percent annual interest rate, it will result in monthly payments of $570 and a total cost of $27,364.

This identical loan at the same interest rate costs a total of $29,190 when paid over the course of 84 months in $348 monthly installments – more than $1,800 more expensive than when paid over 48 months at the same interest rate. In increased interest rates, the gap between short and long-term payments would be much more pronounced.

Average Rates for Auto Loans by Lender

Interest rates on auto loans may vary significantly based on the kind of organization lending the money, and selecting the proper institution will help you get the best deal possible.

Large financial institutions are the most common providers of car loans. On the other hand, credit unions are more likely to give consumers the lowest interest rates, and manufacturers often provide attractive financing alternatives for new vehicles.

Banks and Credit Unions

Generally speaking, most banks that provide car loans offer comparable rates, with as low as 3 percent for the most eligible clients. However, there is a significant variation amongst banks regarding the maximum APR permitted, with top rates ranging from as low as 6 percent to as high as 25 percent.

Banks that provide higher interest rate loans will usually accept applicants with poor credit, while lenders who are more risk conservative will not give loans to applicants with credit scores in the mid-600s or below.

A typical big bank has certain eligibility criteria for loans, such as a limit mileage and age for vehicles and a dollar limit for loans of a certain amount.

Credit unions, on average, provide cheaper interest rates on loans than banks, offer more flexible payment plans, and demand lower loan minimums (or none at all, in some cases).

On the other hand, credit unions prefer to provide loans only to their members, which is frequently limited to those who live in certain areas or work in specific professions or belong to particular social organizations.


Automobile manufacturers also provide loan financing alternatives for new vehicles bought from their dealerships. This form of financing is becoming more common among new vehicle purchasers, accounting for about half of all auto loans.

Providing baseline APRs of zero or one percent to compete with traditional financiers such as banks and credit unions and encouraging customers to buy new cars off the dealer’s shop rather than a used car from another vendor is one way automakers attempt to differentiate themselves from traditional financiers.

High credit scores and low interest rates are only available to the most eligible consumers with outstanding credit histories. Not all loan applications will be accepted for financing by automakers.

New vs. Used Vehicles: The Variance of Interest Rates

Used vehicle loans have higher average interest rates than new car loans. Used car rates are higher because of the greater risk of lending money for an older, less dependable vehicle.

Many banks won’t finance used vehicles older than 8 or 10 years, and those that do tend to have higher APRs.

For a new model, one major bank provides cheap financing rates as low as 2.99%, while for an older model from a private seller, the lowest rate is 5.99%.

The average used vehicle loan is $20,446 vs. $32,480 for new autos. However, the older model used vehicles are not permitted to have periods longer than 48 or 60 months due to increased risk of failure.

Ready to Slash Your Car Expenses?

Whenever you’re on the market for a new car, it can be very nerve-wracking and difficult to get the best car loan rates possible. 

But, we hope that our guide has shed some light on the key factors that can skew your car loan rates from great to terrible. And, if you’ve enjoyed this article, check out the additional tips and tricks we have for you in our finance section.  

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