Auto Loan Rates: Used, New, and Refinance
Subprime borrowers with poor credit paid an average annual percentage rate of 12.14% on new auto loans in 2018. That number was 7.75% APR for people with fair credit, 4.45% for prime borrowers, and 3.47% for superprime borrowers.
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According to Experian, 86.1% of new vehicles and 55.16% of used vehicles were financed in the second quarter of 2018. Most people need to use a new car loan to buy a car because vehicles are too expensive to pay cash for up front.
Borrowing money to buy a car is not free. You pay interest on the loan amount to access the funds. This interest is expressed as an annual percentage rate, and you pay that interest over twelve monthly payments each year.
Auto interest rates vary by lender and are also affected by your credit history, the loan amount, the loan term, and other factors. Since lower interest means your vehicle costs less in the long run, shopping around for the most competitive interest rate is an important step in getting an auto loan.
On this page:
- What Are the Standard Auto Loan Rates in 2019?
- What Variables Affect Auto Loan Rates?
- Will I Be Able to Lower My Auto Loan Rate in the Future?
What Are the Standard Auto Loan Rates in 2019?
Car loan rates are not standard — one lender may charge a very different rate than another. Used car rates are different than new car rates, and your own individual financial circumstances will affect your rate as well.
Still, to get an idea of what rate you might pay, you can look at average auto loan rates. Experian has 2018 data on average auto loan rates:
- Deep subprime borrowers with very low credit scores paid an average rate of 14.39% APR for auto loans for new vehicles in 2018. The most expensive loans were for independently used vehicles, where buyers paid average rates of 20.34%. Franchise-used vehicles had the lowest rates at 18.49%.
- Subprime borrowers paid an average of 12.14% APR for loans on new vehicles, and 16.72% on used vehicles from franchises or independent used car dealers.
- Nonprime borrowers, or people with OK but not great credit, paid 7.75% APR on average for new vehicle loans and 10.63% on average for used vehicle loans.
- Prime borrowers, or people with good credit, paid 4.45% APR on average for new cars and 5.94% on used cars.
- Super prime borrowers, or people with excellent credit, paid a rate of 3.47% APR for new cars and 4.19% for used cars, on average.
In 2019, auto loan rates will be similar. In fact, for 60-month loans, the national average auto loan rate in the U.S. is 4.21% APR. Borrowers with credit scores above 720 can expect to pay around 3.60% on average, while borrowers with very low scores below 589 will pay around 15.24%.
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For people with credit scores between 590 and 619, the average is 14.06% APR; while for scores in the 620 to 659 range, it’s 9.72%. Finally, borrowers with a score between 660 and 689 will pay 7.02% on average and borrowers with a score between 690 and 719 can expect average rates of 4.95%.
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As you can see, credit score makes a huge difference, so you should work to improve your credit as much as possible before you start shopping for a car loan.
What Variables Affect Auto Loan Rates?
The economy can affect auto loan rates, but the three most important factors that determine the rate you’ll pay are your credit score, the lender you choose, and your downpayment amount.
A good credit score tells a lender that you are responsible and likely to submit all of your car payments on time. Since the creditor will see lending to you as less risky, they will not charge you as much interest.
Unfortunately, building a good credit score, takes time. You’ll need to have pre-existing credit — like a credit card — and pay your bills on time every month. You’ll also need to avoid utilizing too much of the credit that is available to you.
Unfortunately, if you haven’t had time to build credit or if your score is too low because of irresponsible past borrowing behavior, this will profoundly impact your auto loan rates.
The lender you select will also impact your score. Some lenders charge much more than others, especially if they cater to bad credit borrowers. You should never assume that getting financing through the dealer is always going to be the right way to secure an affordable loan. Instead, you should get several quotes from different financial institutions, including banks, credit unions, and online lenders, to see who offers lower rates.
By shopping for the most affordable rates, you could potentially save yourself thousands of dollars in interest over the life of your auto loan.
Finally, increasing your downpayment amount may help you obtain lower interest rates. The more you pay for the vehicle upfront, the less risk you pose to the lender, so they’ll be more likely to offer you low rates.
Will I Be Able to Lower My Auto Loan Rate in the Future?
If you can’t qualify for the most favorable loan rates when you obtain a car loan, don’t despair. If you make payments on your loan on time, you should improve your credit score. This can make it possible for you to qualify for an auto refinance loan in the future.
When you refinance, you take a new loan with more favorable terms to repay your old one. You could refinance with the lender who you currently have the loan with, or you could choose a different lender to refinance with. The key is to refinance only if you can drop your interest rate because your credit score or other financial credentials have improved.
Bottom line: There’s No Standard Auto Loan Rate – So Shop Around
As you can see, there is no standard rate for an auto loan — but all lenders do consider similar criteria, such as your credit score, income, and downpayment amount, when deciding whether to lend to you and at what interest rate. To make sure you are getting the best financing possible, you should work to improve your credit before submitting your loan application, you should shop around and compare rates and terms among several different lenders.
By finding the best auto loan rate and keeping borrowing to a minimum, you can keep your monthly payments and total loan costs low so your car will be as affordable as possible.
The post Auto Loan Rates: Used, New, and Refinance appeared first on LendEDU.