Credit score

What is the average interest rate for a car loan? Depends on credit score

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  • The average interest rate for new cars in 2021 is 4.09% and 8.66% for used cars, according to Experian.
  • The credit score, whether the car is new or used, and the term of the loan largely determine interest rates.
  • The average rate has fallen since the first quarter of 2020, from 5.22% for new to 9.33%.
  • Compare up to 4 car loan offers with our partner myAutoLoan »

In the first quarter of 2021, the average auto loan rate for a new car was 4.09%, while the typical used auto loan carried an interest rate of 8.66% depending on the state of the financing market automobile from Experian.

Interest rates are calculated taking into account many factors, including your credit score, the type of car you buy and where you live. Auto loans can be found through a dealership or by collecting pre-approvals from institutions you would like to work with, such as banks,


credit unions

, or independent lenders.

Data from Experian shows that the two most important factors on your auto loan interest rate are your credit score and whether you’re buying a new or used car.

Here are the average interest rates for each type of credit score for new and used car purchases, according to Experian

Average interest rates by credit score

The higher your credit score, the less it will cost you to borrow

Credit scores are a numerical representation of your credit history. It’s like a score for your borrowing history ranging from 300 to 850, and includes your borrowings, applications, repayments, and mix of credit types on your credit report. Companies use credit scores to determine how risky they think lending you would be, and therefore how much they want to charge you for that privilege.

Auto loans are no exception to the long-standing rule that a lower credit score makes borrowing more expensive. In the data above, the cheapest borrowing rates went to people with the best credit scores. Meanwhile, those with the lowest credit scores paid about 10 percentage points more to borrow than those with the highest scores.

The interest rate also has a big effect on the monthly payment. Using Bankrate’s car loan calculator, Insider calculated how much a borrower paying the average interest rate would pay for the same $30,000 new car loan over 48 months:

With the interest rate as the only factor changed, someone with a credit score in the highest category will pay $655 per month, while someone with a score in the lowest category would pay $829 per month. or $174 more per month for the same car.

Average interest rate for used cars compared to new cars

Buying used could mean higher interest rates

Buying a new car can be more expensive, overall, than buying used. But, interest rates for new and used car loans are quite different, regardless of your credit score. Based on data from Experian, Insider calculated the difference between new and used interest rates. On average, financing a used car costs about four percentage points more than financing new.

The gap between the cost of financing a used car narrows as credit scores rise, but even for the best credit scores, a used car will cost more than 1% more to finance than ‘a new car.

Used cars are more expensive to finance because they are higher risk. Used cars often have lower values, plus a greater chance that they could be totaled in an accident and the finance company could lose money. This risk is transmitted in the form of higher interest rates, regardless of the borrower’s credit rating.

Average interest rates by loan term

Loans under 60 months have lower interest rates

Loan terms can affect your interest rate. In general, the longer you pay, the higher your interest rate.

After 60 months, your loan is considered a higher risk and the amount you’ll have to pay to borrow spikes even more. The average rate for a 72-month car loan is almost 0.3% higher than the typical interest rate for a 36-month loan. This is because there is a correlation between longer loan terms and non-payment – lenders fear that borrowers with a long-term loan will eventually not repay them in full. Beyond 60 months, interest rates increase with each year added to the loan.

S&P Global’s data for new car purchases with a $25,000 loan shows how much the average interest rate changes:

It’s best to keep your auto loan at 60 months or less, not only to save on interest, but also to prevent your loan from becoming more valuable than your car, also known as underwater. As cars age, they lose value. This is not only a risk for you, but also for your lender, and this risk is reflected in your interest rate.

Average interest rates by lender

The lender you use makes a difference

When you start shopping around for car loans, you’ll find that the lender you choose makes a difference. Here are the starting interest rates from several different lenders for new and used cars.

Banks set their minimum auto loan rates independently, so it’s important to shop around and compare offers to see what works best for you. Get pre-approved from several different lenders and compare APRs and monthly payments to find the deal that’s right for you.