What Is the Average Interest Rate on a Car Loan?

On loans with a term of sixty months, the average interest rate for a vehicle loan in the United States is 5.27 percent. However, interest rates may differ for individual borrowers depending on their credit score, the length of the loan term, the age of the vehicle being financed, and any other criteria that are important to the risk that a lender assumes when providing a loan. The typical annual percentage rate for vehicle loans may run anywhere from 3 to 10 percent.

Average Interest rate Based on Credit Score

Credit scores are a numerical summary of an individual's credit history. They serve as a grade for your history of borrowing, ranging from 300 to 850, and are included on your credit report with your borrowing, applications, payments, and a mixture of other sorts of credit. Companies will look at your credit score to evaluate how hazardous they believe it would be for them to give you money.

A lower credit score will result in higher interest rates on any loans. According to the research shown above, those with higher credit scores were offered lower interest rates on loans. Those borrowers with the lowest credit scores were charged interest rates around ten percentage points more than those with the more credit ratings.

  • 700s: Lenders see consumers with high credit scores, 700 or more, as premium loan applicants and could be approved for rates as low as 3 percent. In contrast, consumers with poor credit scores are viewed as potentially risky investments for lenders, so they generally pay higher interest rates, even up to 20 percent.
  • 600s: If your credit score is in the 600s or below, it will become more costly to borrow money. On the positive side, the interest rates that these borrowers may expect to pay when they refinance their auto loans are still among the lowest available. If you buy a car with a high-interest rate, you may refinance it and save money after you've established sufficient equity in the vehicle. 

For borrowers with a credit score of approximately 600, the average interest rate for a loan to purchase a new car is 15.43 percent. For a loan to purchase a used car, the average interest rate will be approximately 15.68 percent; and the average interest rate for a loan to refinance an existing car loan will be 6.10 percent. 

  • 500s and below: Suppose a customer has a credit score of 599 or below; it is an indication that they have a terrible financial history, which may include missing monthly payments, defaulting on debt, or filing for bankruptcy.

Average Interest rate Based on Loan Term

The terms of the loan might affect the interest rate. In most cases, the length of your term will determine the interest rate you will be charged.

After sixty months, your loan is evaluated as having a more considerable risk. As a result, the interest rate you'll pay on it will increase by an even more significant amount. Regarding new automobiles, the interest rate for loans with 72 months is about 0.3 percentage points more than the rate for loans with 36 months. 

This is because there is a link between longer loan terms and nonpayment, and lenders fear that borrowers who take out loans with longer terms will not pay them back after the loan period. Once the 60-month milestone has been reached, the interest rates increase with each year added to the loan.

Average Interest rate Based on Lender

When you start looking into different options for vehicle loans, you will discover that the particular lender you choose does make a difference. These are the introductory interest rates offered by various lenders for both new and used automobiles. 

Since the minimum interest rates that banks charge for vehicle loans are separately determined, it is vital to shop around and evaluate the various offers to determine what would work best for you. Obtain pre-approval from several lenders, then evaluate each offer's annual percentage rates (APRs) and monthly payment amounts to choose the most suitable one.

For instance, the interest rate on a new vehicle loan from Bank of America begins from 3.69 percent, the interest rate on an old car loan starts from 3.89 percent, and the interest rate on refinancing or lease buyout car loan starts from 4.79 percent.

While the interest rate on a new vehicle loan from Navy Federal begins at 2.29 percent, the interest rate on an old car loan starts at 2.69 percent, and the interest rate on a refinancing car loan starts at 2.29 percent.

Average Interest Rate Based on the Age of the Car

Your credit score doesn't matter; the interest rates on new and used vehicle loans are vastly different. About 4% more expensive than new automobile finance, used car financing is four percentage points more expensive on average.

Since used automobiles often have lower values and a more significant risk of being wrecked, the lender stands to lose money if the vehicle is ever involved in an accident. Increased interest rates allow lenders to compensate for this risk regardless of the borrower's credit score. It costs extra to finance used autos because of the increased risk.