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Average auto loan rates are always in flux depending on market conditions. In 2021, new car loan rates range from 2.34 percent to 14.59 percent. The difference between a low and high annual percentage rate (APR) is based largely on your credit score.

This article will explain the factors that determine how lenders set APRs and offer tips for finding the lowest auto loan rates. Also read our review of the best auto loan providers to learn about and compare the top lenders in the industry.

 

In this article:

What Determines Average Auto Loan Rates?

The most important factor that decides your auto loan rates is your credit score. The better your score, the lower your APR will be. The best rates are reserved for those with credit scores above 800, but according to Equifax, any score above 670 makes you a “low-risk borrower” and opens the door to lower average auto loan rates.

However, your credit score isn’t the only determining factor. Employment status, income, and the type of vehicle you purchase also affect rates. Having a steady income stream and purchasing a newer vehicle will result in better auto loan rate offers.


What Is A Good Auto Loan Interest Rate?

Anything below four percent is an excellent auto loan interest rate. However, depending on your circumstances and credit score, finding a rate below four percent may not be possible.

To give you an idea of what average auto loan rates you can expect based on your credit score, see the table below. These outline average auto loan rates for new and used cars based on information from the second quarter 2021 Experian State of the Auto Finance Market report.

Average Auto Loan Rates By Credit Score
Credit Score Average New Car APR Average Used Car APR
781 to 850 2.34% 3.66 %
661 to 780 3.48% 5.49%
601 to 660 6.61% 10.49%
501 to 600 11.03% 17.11%
300 to 500 14.59% 20.58%
 

You can see that rates change drastically by credit score. This also affects what you pay back to a large degree. Let's say you took out a $10,000 auto loan with 60-month terms to purchase a new vehicle. If you have excellent credit and get a rate of 2.34 percent, you would pay an extra $606 in interest. In other words, it costs $606 to take out a loan of $10,000 with that interest rate.

Now, let's say you have a decent score of 650 and get a rate of 6.61 percent. In this case, you would pay an extra $1,771 in interest on top of the loan. 

If a fair score gives you an average auto loan rate of 11.03 percent, you'd pay $3,054 in interest. And if you had a very high rate of 14.59 percent, you'd pay $4,145 in interest on the $10,000 loan. Ouch.

Credit Score And Car Loan Interest Rates Explained

Your credit score sums up your credit history as a number. To lenders, your score predicts the likelihood that you'll make on-time payments. People with lower credit scores end up paying higher interest rates because lenders see them posing a higher risk of late payments or default.

On the other hand, people with good credit scores find lower interest rates because lenders see them as good candidates for paying back loans. Life happens, and you may have a low score because of something that happened in the past on your credit report. Unfortunately, the lowest rates are only available to people with the best scores.

Here's how Experian ranks credit score ranges:

  • Super prime: 781 to 850
  • Prime: 661 to 780
  • Nonprime: 601 to 660
  • Subprime: 501 to 600
  • Deep subprime: 300 to 500

Tips For Reducing Average Auto Loan Rates

The best way to reduce the average auto loan rates you find is to improve your credit score. This can be done by paying your bills on time and keeping your credit card balances low. Paying your monthly payments in full can also help. Outstanding debts or collection notices can impact your credit score, so paying these off will improve your credit.

However, building your credit score can take time and the advice above may not be practical for everyone, especially those with a limited income struggling to pay minimum balances each month.

There are a few other things that can reduce your auto loan rates:

  • Have someone cosign: Many lenders allow you to have another person cosign a loan. A cosigner with strong credit can reduce your interest rates.
  • Buy a new car instead of a used one: While new cars are more expensive, lenders typically offer lower auto loan rates for new car purchases.
  • Place a bigger down payment: A bigger down payment can reduce your interest rate as well as the amount of time it takes to pay off your loan.

You might also consider trying to pay your loan in a shorter time frame. While this may not reduce your loan interest rate, it will mean that you pay off your loan sooner and will have to pay less interest. However, be sure to read your loan contract language carefully. Some lenders charge a prepayment penalty – an extra fee for paying down your auto loan too early.


Where To Find The Best Auto Loan Rates

The table below shows the lenders that offer the lowest auto loan rates. However, just because a loan provider offers low APRs does not mean everyone is eligible for that rate. Loan terms vary by individual, and there is no single best lender for all drivers.

Some lenders, like PenFed, offer car buying services. This means you can shop for a car and finance it in one place. Also, some lenders offer both purchase and refinancing loans, while others will offer either one or the other.

Best Auto Loan Rates
Lender

Lowest

Auto Loan Rate

Minimum

Credit Score

Loan Amount

PenFed Credit Union 0.99% 610 $500 to $100,000
Autopay 1.99% 630 $2,500 to $1,000
Auto Approve 2.25% 580 $5,000 to $85,000
RateGenius 2.39% 550 $10,000 to $90,000
myAutoloan.com 2.49% 575 $5,000+
Tresl 2.49% 500 $5,000 to $100,000
Auto Credit Express Varies by lender No minimum credit Varies by lender
 

Drivers with poor credit are unlikely to be eligible for the interest rates noted in the table above. If you have poor credit, try comparing offers from multiple lenders using a site such as AutoCreditExpress.com. This site also specializes in finding loans for borrowers with bad credit, so if you have trouble finding auto loan offers, it’s worth checking.

When comparing loans, be sure to only submit applications to auto lenders that allow you to prequalify without a hard credit check. Hard credit checks can hurt your credit score even further. A good first step is to use an auto loan calculator to predict what your payment and total loan cost would be. 


How To Apply For An Auto Loan

You can apply for an auto loan online, at a financial institution, or at the dealership when purchasing a car. Some lenders allow you to browse the inventory of participating dealerships after your loan is preapproved. Because most loan applications require vehicle information, you may need to have a particular car in mind before applying.

When you apply for a car loan, be sure to have the following information handy, as it may be required to prequalify and will certainly be required before you submit your formal loan application:

  • Personal details such as name, address, and age
  • Social security number
  • Gross annual income information
  • Vehicle information such as age, mileage, and vehicle identification number (VIN)

While not required during prequalification, before you can secure your loan, you may need additional documentation such as your driver's license, pay stubs, and personal references.

If you plan to have someone cosign your loan, that person will also need to supply the information and documents mentioned above.

 

FAQ: Average Auto Loan Rates

What is a good rate on a car loan?

A rate of 4 percent or below is considered good when shopping around for a car loan. Be aware that loans for new vehicles have slightly lower average rates than loans for used vehicles.

What is the average interest on a car loan with a 750 credit score?

For a 750 credit score, the average auto loan rate is about 3.48 percent for new cars and 5.49 percent for used cars. Both of these rates are very good compared to the available range.

Is three percent a good auto loan rate?

Yes, three percent is a good auto loan rate for new vehicles. It's an even better rate for a used vehicle loan since lenders charge higher rates for used vehicles. 

Is six percent a good interest rate for a car loan?

Six percent is a decent rate for a new vehicle car loan. This rate typically requires credit scores of 600 or better. Six percent is a very good rate for a used car loan, and it requires a score of 660 or better.

Disclaimer: Our research team aims to keep this information accurate and up to date, but you'll get the most recent information from financial institutions. Rates and terms vary according to applicant and market conditions. We do not offer warranties for any loan products or services discussed on the site, and we recommend you read through a financial institution’s terms and conditions carefully when making a decision on a loan product.