Car loan interest rates are determined by your credit score. The lower your score, the higher your interest rate 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

Car loan interest rates are tied directly to your credit score. With that said, you can still get a decent rate without having top-tier credit.

To get a better idea of just how much of a difference a higher credit score can make, and an idea of where your interest rate might land, it’s worth looking at the average rates by credit score.

Credit score Average interest rate for new car loans Average interest rate for used car loans
781 to 850 3.84% 3.69%
661 to 780 4.9% 5.47%
601 to 660 7.25% 9.81%
501 to 600 10.11% 15.86%
300 to 500 12.93% 19.81%

Source: Experian State of the Automotive Finance Market Q3 2022 

Factors that affect auto loan interest rates

While your credit score will play a large part in determining how much interest you pay, 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.

Lender

Different lenders are going to have different credit underwriting criteria. Aside from credit score, your income and debt-to-income ratio are going to be considered. Some may take into account your education or professional experience or weigh it more heavily than others.

Outside of qualification and underwriting standards, some lenders also just offer lower rates in general than others. Just know that the lowest APRs — those typically listed on lender websites — go to borrowers with excellent credit.

Amount borrowed

Both the price of the vehicle and your down payment factor into the amount borrowed. If you’re not willing to put more than the required amount down, the lender may see it as increased risk and up the interest rate to compensate.

Length of the loan

The longer your loan term, the more interest you’ll pay. But, aside from the additional interest accrued, lenders may charge higher interest rates for longer loans.

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

It is a good idea to apply for preapproval with at least three lenders before you settle on one. You will be required to provide some personal and employment information, but not every rate quote will require a hard credit check. Because some do require a hard pull, it’s best to keep your application window to about two weeks.

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.

Get a co-signer

If you have a lower credit score, consider asking a family member or trusted friend who has 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 there’s less risk for the lender. Keep in mind that this can put strain on a relationship if you are unable to pay.

Where to find the best auto loans

There are many different avenues you can use to find the best auto loan.

  • Banks. If you already have a relationship with a bank and have a high credit score, your bank may provide one of the most competitive interest rates. But read the entire agreement before you sign — some banks write in a clause that allows them to take from your checking or savings.
  • Credit unions. Like a bank, if you’re a member of a credit union, it may offer a competitive interest rate. And if you have less-than-perfect credit a credit union may be willing to look past that and still extend a reasonable rate.
  • Online lenders. There are several online lenders that offer auto loans you can prequalify for. As with most direct lenders, you’ll likely get a better rate than you would by applying with a dealership.
  • Car dealers. This is one of the biggest ways that you can get stuck with a higher interest rate. Dealers add markups to interest rates provided, which means you’ll be stuck paying more than if you went to the lender directly. Check with several different lenders before going to a dealership to get the best deal possible.

The bottom line

Low car loan rates are typically reserved for borrowers with near-perfect credit scores. And while it’s good background to know the average rates, you’re not guaranteed to get the figure corresponding to the credit bracket you’re in.

Whether you know your credit score or not, you can prequalify with lenders online and off to see what kind of rates you’re eligible for.

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