Key takeaways
- The average auto loan interest rate for new cars at the end of 2023 was 7.18 percent, while used cars had an average rate of 11.93 percent.
- Your credit score plays a significant role in determining your interest rate, but other factors such as the lender, amount borrowed, length of the loan and economic conditions also play a role.
- The best way to secure a competitive interest rate on your auto loan is to shop around and work to improve your credit score.
If you’re in the market for a car, you’re probably thinking about the interest rate on your car loan. Your credit score determines your car loan interest rates. According to Experian’s State of the Automotive Finance Market report, the average auto loan interest rate for new cars in 2023’s fourth quarter was 7.18 percent, and 11.93 percent for used cars.
Generally, the lower your score, the higher your annual percentage rate (APR) will be. However, you don’t need a perfect score to get a good rate. To find the best auto loan rate, it is wise to shop around and work to improve your credit score if it isn’t in the best shape.
Average auto loan interest rates by credit score
Lenders base your interest rates primarily on your credit score. But you can still get a decent rate without top-tier credit.
To see how much of a difference a higher credit score can make for your rates, check out the average car loan interest rates by credit score.
| Personal FICO score | Average interest rate for new car loans | Average interest rate for used car loans |
|---|---|---|
| 781 to 850 | 5.64% | 7.66% |
| 661 to 780 | 7.01% | 9.73% |
| 601 to 660 | 9.60% | 14.12% |
| 501 to 600 | 12.28% | 18.89% |
| 300 to 500 | 14.78% | 21.55% |
Source: Experian State of the Automotive Finance Market Q4 2023
Average auto loan interest rate by state
Your hometown also impacts the rate you receive. Discover your state’s average auto loan rates.
Factors that affect auto loan interest rates
While your credit score plays a large part in determining your interest rate, there are other factors to consider alongside it.
Credit score
The two most common scores used when underwriting car loans are FICO and VantageScore. Both account for several measures of financial wellness, including payment history, credit utilization, credit mix and average age of accounts.
There are some differences in the number of metrics used and how they’re weighted. But both scores fall between 300 and 850. As the chart shows, the best rates go to buyers with scores in the mid-600s and higher.
Lenders may instead use an auto industry-specific scoring system, such as the FICO Auto Score, which ranges from 250 to 900. These scores consider the same factors but give more weight to risk factors associated with your likelihood of repaying an auto loan.
Lender
Different lenders have different credit underwriting criteria. All will consider your credit score, income and debt-to-income ratio, but lenders differ in what they find acceptable. Some may consider your education or professional experience, too.
Plus, some lenders simply offer lower rates than others.
Amount borrowed
Both the price of the vehicle and your down payment factor into the amount borrowed. The lender may see an increased risk if you’re unwilling to put more than the required amount down. They might up the interest rate to compensate.
Length of the loan
Typically, the longer your loan term, the more interest you’ll pay as interest accumulates. Additionally, lenders may charge higher interest rates for longer loans.
This is because there is more perceived risk for the lender. The longer the loan, the higher the likelihood it won’t get paid back in full.
Economic and market conditions
Broader market factors also play a role in setting the industry’s minimum rates. When the federal funds rate is high, as dictated by the Federal Reserve, it costs lenders more to borrow money. In turn, you are likely to face higher interest rates.
The current Federal Reserve target interest rate is 5.25 to 5.5 percent. It’s at its highest in 22 years. But the Fed hasn’t increased the benchmark rate since July of 2023. Experts forecast that rates will drop slightly for those with strong credit this year.
Those with poor credit are less likely to see relief in 2024. If that’s you, focus on comparing bad credit auto loan rates.
How to get a better auto loan interest rate
There are a few ways to improve your chances of getting a competitive interest rate, regardless of your credit score.
- Shop around: Shop around with multiple lenders, including banks and credit unions, and compare auto loan interest rates. Not all lenders report to credit bureaus, so if you’re trying to build your credit, make sure to pick one that does.
- Apply for preapproval: Apply with at least three lenders before settling on one. You must provide personal and employment information. Preapproval requires a hard credit pull, temporarily dropping your score by a few points. So, it’s best to keep your application window to 14 days so you only take one ding.
- Make a larger down payment: A down payment decreases the amount you need to borrow. By decreasing the amount borrowed, the lender takes on less risk. Less risk translates to lower interest rates. Experts recommend aiming for at least 20 percent of the car’s purchase price.
- Get a co-signer: If you have a lower credit score, consider asking a family member or trusted friend with an excellent credit score to co-sign your auto loan. Your co-signer will assume the debt if you can’t pay it back, which means the lender has less risk. Remember that it may strain your relationship if you cannot pay.
The bottom line
The lowest car loan rates are typically reserved for borrowers with near-perfect credit scores. While you’re not guaranteed to get the figure corresponding to your credit bracket, keep it in mind while shopping around for a good deal.
You can prequalify with lenders on and offline to see the rates you’re eligible for.
