Key takeaways
- Average car loan rates are around 6–7% for new cars and 10–12% for used cars.
- Buyers with lower credit scores receive the highest interest rates.
- To qualify for a lower interest rate, you can build credit, put down a larger down payment, or apply with a cosigner.
Buying a car almost always means taking out an auto loan. One of the most important factors to consider when you borrow is the interest rate. The rate you receive affects how much you’ll pay each month and the total cost of your vehicle over time.
Average auto loan rates vary based on credit score, loan term, income, and whether you’re financing a new or used car. Understanding the typical rates can help you compare offers, negotiate better terms, and save money throughout your loan.
Jump to:
- How does interest work on a car loan?
- What are current car loan rates?
- Average car loan interest rates by credit score
- Average car loan rates by term length
- What factors contribute to auto loan interest rates?
- What is a good APR for a car?
- What people are actually paying
- Tips on how to pay less interest
- Bottom line
How does interest work on a car loan?
Interest on a car loan is the cost you pay to borrow money from a lender. Lenders calculate it as a percentage of your loan amount and add it to your monthly payment. They determine your rate based on factors including your credit score, credit history, income, loan term, and whether you’re buying new or used.
Most car loans use simple interest, meaning you pay interest only on the remaining balance of the loan. At the start, more of your monthly payment goes toward interest, while over time, more is applied to the principal. This process is called amortization. The higher your rate, the more you’ll spend in interest overall, even if your monthly payment looks manageable.
Understanding how interest works can help you save. For example, making extra payments toward your principal reduces the balance faster, cutting down the amount of interest you’ll owe. Choosing a shorter loan term can also lower your total interest costs, even if the monthly payment is higher.
What are current car loan rates?
As of March 2025, Experian puts the average car loan interest rate at 6.73% APR for new cars and 11.87% APR for used vehicles. Edmunds compiled similar data for July 2025, putting new car loans at 7% APR, and the average used car interest rate at 10.9%.
The APR you receive depends not only on the age of your vehicle, but on the length of your loan term. Bankrate’s data shows the average interest rate by loan term as of August 20, 2025.
- A 60-month new car is 7.22%
- A 48-month new car is 7.10%
- A 48-month used car is 7.68%
- A 36-month used car is 7.51%
Your credit score also has a significant impact. Consumers searching for car loans with bad credit should expect to pay notably higher rates. Experian found that subprime borrowers with lower credit scores tend to see interest rates as high as 15.81% to 21.58% APR. Those with excellent credit enjoy much lower rates, often around 5.18% to 6.82% APR.
Anyone can finance a car
Average car loan interest rates by credit score
Lenders consider your credit score when they set interest rates. Your score helps them assess your overall financial health and how much of a risk you pose. Borrowers with poor credit are statistically more likely to miss payments or default than those with higher ratings. As a result, lenders impose higher interest rates to compensate for the risk.
Credit score range | New car average APR | Used car average APR |
Superprime: 781-850 | 5.18% | 6.82% |
Prime: 661-780 | 6.70% | 9.06% |
Nonprime: 601-660 | 9.83% | 13.74% |
Subprime: 501-600 | 13.22% | 18.99% |
Deep subprime: 300-500 | 15.81% | 21.58% |
Average car loan rates by term length
Lenders charge more for loans with longer terms since they are riskier; borrowers have more time to miss payments and default. Loans with shorter repayment terms often come with lower APRs. You’ll pay less interest over time, though the monthly costs are higher.
Loan term range | New car average APR | Used car average APR |
1 to 48 months | 3.87% | 12.05% |
49 to 60 months | 5.04% | 10.93% |
61 to 72 months | 6.86% | 12.8% |
73 to 84 months | 9.07% | 11.53% |
85 months or more | 9.22% | 9.81% |
What factors contribute to auto loan interest rates?
Generally, lenders base interest rates on your likelihood of repayment. They consider several factors to determine this.
Credit score: Your credit score carries the most weight. Borrowers with excellent credit typically qualify for much lower rates than those with poor or limited credit histories.
Credit history: Lenders review your credit report to get a complete picture of you as a borrower. They consider how much of your available credit you’re using and your payment history.
Income and debt-to-income (DTI) ratio: Your DTI ratio shows how much of your monthly income goes toward debt payments. Your DTI is an indicator of how much you can realistically afford to pay. A stable income and manageable debt load usually lead to better offers.
Loan term: Loans with shorter repayment terms often carry lower interest rates but come with higher monthly payments. Longer terms may reduce monthly costs but increase the total interest paid over time.
Vehicle’s type and condition: Used car loans typically have higher APRs because the vehicle is more likely to break down.
Size of your down payment: A larger down payment reduces the lender’s risk, potentially lowering your rate.
Economic conditions: Lenders adjust their rates based on the current market rate. The federal funds rate and the Wall Street Journal prime rate set the current rate. If the average interest rate goes up, so will the rate you’re likely to receive.
Loan-to-value (LTV) ratio: The LTV ratio is how much of the vehicle’s value you borrow. A lower LTV will likely result in a lower interest rate.
Considering leasing a new car?
What is a good APR for a car?
The APR is the yearly cost of a loan, consisting of both the interest rate and any mandatory fees. When comparing financial products, consider the APR, as it reveals the actual cost of borrowing. A good APR for financing a car is anything that is below the average for your credit score range.
For example, if you have excellent credit, a good APR for a new car would be 5.18% or under, while for a used car, it would be an APR under 7%. The best rate is unique to the borrower.
Many buyers wonder, Can you buy a car with a credit card, as it seems like a quick way to earn rewards, and some cards come with 0% APR intro offers. The answer tends to be yes, but the dealership may not let you put the full amount on your card. You also need to pay off the credit card before you accrue interest. Securing an auto loan with a low APR is often a better choice.
What people are actually paying
Official data offers reliable averages. It can help you get a sense of what you can expect to pay, but it’s not the whole picture. Reddit provides a glimpse into firsthand experiences and potential deals.
tlbutler33 wrote, “Just bought a Tesla from CarMax. 800 score and 10% down. They offered 72 months @ 7.49%. Went to my CU and got 5.99% for 72 or could have got 7.49% for 84. Credit Unions are for sure the way to go if you have decent credit.”
zel_bob wrote, “I just bought a new car, my credit union was 5.49% and the dealership said they could match it. My credit union also had 1.5% of incentives that could get the rate down to 3.9% essentially. And they went silent. I chose certain incentives and my rate is 4.9% (I didn’t do them all). I’m a 755 credit score.”
These anecdotes show that while averages are a good baseline, you may be able to secure financing at a lower rate. It certainly helped these users to shop around and work with their credit unions for funding, rather than going straight to the dealership.
Tips on how to pay less interest
Paying less interest starts with improving your credit. The higher your score, the more likely you are to receive a loan with a low APR. If you need to build credit fast, focus on paying bills on time, reducing credit card balances, and keeping your credit utilization low. Even minor improvements in your score can qualify you for lower rates.
If you do not have the time to build credit, try applying with a cosigner. The lender will also consider your cosigner’s credit history and may offer financing with better terms.
You can also prequalify with at least three lenders and compare offers. Different lenders offer loans with different terms. Prequalifying lets you compare rates and terms side by side without impacting your credit.
Opt for the shortest affordable loan term. Loans with shorter repayment terms have lower APRs. You will pay less in interest overall, but your monthly payments will be higher. Make sure the payments fit your budget before signing.
Save for a larger down payment. The more money you can put down, the less you need to borrow, and the lower your LTV will be. Larger down payments often result in lower interest rates, reduced monthly payments, and lower overall costs.
The vehicle you choose matters. Look for a newer car that is in your price range. Newer vehicles have higher price tags but lower interest rates.
Another option is to refinance a car loan with bad credit once your financial situation improves. Refinancing is when you replace your current loan with one that has better terms. You can potentially lower your rate and save thousands.
Frequently asked questions
1. Is 10% a high interest rate for a car?
A 10% APR is high for a car loan, especially for new vehicles. Rates this high are more common for borrowers with lower credit scores or for used cars. While it’s not unusual for subprime borrowers, most people with good credit can secure significantly lower rates.
2. What is a good credit score to buy a car?
A credit score of 670 or higher is generally considered good for buying a car. It increases your chances of approval and securing a low APR. Buyers with a FICO score over 740 can unlock the best rates, while those in the low 600s will face higher costs. Even so, lenders often approve loans for lower scores, but with higher interest.
3. Are interest rates going down for cars?
Car loan interest rates remain relatively high, mainly because of broader economic conditions and Federal Reserve policy. While rates may ease slightly if inflation continues to cool, significant drops are unlikely in the short term. For now, buyers should expect averages of around 6–7% for new cars and 10%+ for used.
4. What is a good APR for a first-time car buyer?
What qualifies as a good APR depends on your credit score, not if you’re a first-time buyer. Anything below the national average – 6% to 7% for new cars and 10% to 12% for used cars – is favorable. If you have limited credit, your rate will likely be higher. Think about building your credit first or getting a cosigner to help secure a lower rate.
5. What is a good interest rate on a car?
A good car loan interest rate depends on your credit history, loan term, and whether you’re buying new or used. Generally, anything below the national average is considered favorable. If you can secure a rate at the lower end of this range, you’re getting an outstanding deal.
Bottom line
Interest rates play a major role in determining how affordable your car purchase will be. A lower rate can save you thousands over the life of a loan, while a higher rate can make buying a car unaffordable. The rate the lender gives you depends heavily on your credit score, loan term, and whether you’re financing a new or used vehicle.
Before you start shopping for a new vehicle, take the time to check your credit score and evaluate your financial situation. If your credit is less than ideal, focus on paying off debts and maintaining a low utilization rate to build it up. Work on saving for a larger down payment so that you can take out a smaller loan. Demonstrating that you can repay the loan and are serious about the purchase can help you secure a lower APR and save money.