Best auto loan rates in May 2023

The May meeting of the Federal Open Market Committee (FOMC) raised the benchmark rate by 25 basis points to 5-5.25 percent, another hike working towards the goal of controlling growing inflation. For drivers dealing with new vehicles costing an average of over $48,000 in March 2023, according to Kelley Blue Book, and the price to fill up at the pump hitting record highs, the added burden of higher rates feels daunting.  

The benchmark rate doesn’t directly shift auto rates, but it affects the number that auto lenders base their rates on. You may be met with steeper costs to borrow money for vehicle financing due to the Fed hike, but the hike itself is only one part of that increase.  

The company that can offer you the lowest rates for an auto loan can vary depending on where you live, your credit score, your employment history and other factors. Your best bet is shopping around among at least three auto lenders until you find the best deal. If your credit score is on the lower end — 580 or lower — some lenders may offer higher interest rates or longer loan terms, which can be a risk. Taking steps to improve your credit score can go a long way toward getting a better interest rate and saving you hundreds or thousands of dollars if you are not in a rush to purchase a vehicle.

Choosing between a dealership and a bank for an auto loan is complicated. In general, dealerships may offer higher rates than banks — but this may not be the case for used cars. Regardless, it is important to get quotes from a few banks or online lenders first; that way you can come to the dealership prepared. Ask for a quote from the dealership as well, comparing rates, terms and any additional fees. 

You can get prequalified for an auto loan online and without ever leaving your home. All you have to do is select one of the lenders on this list and choose its online option to “get prequalified” or “apply for a loan.” Many lenders let you get prequalified for an auto loan without a hard inquiry on your credit report.  

Auto loan interest rates vary based on a number of factors, including the amount you are borrowing, the loan term, loan type and your credit history. The average interest rate for a new car is 6.07 percent, and the average interest rate for a used car is 10.26 percent according to the Experian State of Automotive Finance Market report from the fourth quarter of 2022.

The credit score required for an auto loan varies based on where you buy and how much you borrow. At a buy-here, pay-here lot you may not need as strong of a credit score as you might elsewhere. Typically, however, you should aim for a credit score of 670 or higher to get close to average rates.

Super prime borrowers with credit scores above 781 are most likely to qualify for 0 percent APR offers that sometimes come with a new car. However, you may be able to qualify if you’re a prime borrower with a score between 661 and 780 and have strong debt-to-income ratio and employment history.

Refinancing a car loan is essentially just taking out a new car loan — so the steps for applying are mostly the same. You will need your driver's license, Social Security number and proof of income, as well as details about your car. If approved, you will use the funds from your new loan to pay off your old car loan, then begin making monthly payments with your new interest rate and terms.

On average, drivers falling into the deep subprime category gravitate towards a 6 year term, according to Experian. Recent data shows an APR of 13.42 percent for new and 20.62 percent for used cars.

Yes, you should negotiate your interest rate as you would negotiate the car’s price. It is especially helpful to use other loan offers as leverage for getting the most competitive rate.