What Is A Good APR For A Car? (2024)

Shopping for a new car can be both stressful and exciting as you steer closer to buying your dream vehicle. A good way to ease this process is knowing how much you’re going to pay if you need a loan to purchase a car. Locking in a good annual percentage rate (APR) will save you money on the life of your loan and potentially get you more car for your money.

What Is an APR?

Every auto loan has an APR, which is the annual cost you’re charged by the lender for borrowing money. It’s slightly higher than the base interest rate the loan carries because it includes fees for servicing the loan—like documentation of the title and taxes, dealer prep and other fees associated with the transaction.

The higher the APR, the more you will pay back to the lender over the life of the loan. This is why it’s important to shop around for the loan.

How Is APR Determined on a Car Loan?

An auto loan is secured by the vehicle that is being financed. How much you pay for that loan—the APR—depends on a number of factors, including:

• Credit score: Your credit score is a key factor in determining the interest rate you get on an auto loan and the APR overall. The higher your credit score is, the more likely you are to get a lower rate.
• Down payment: Having a down payment helps reduce the amount of the loan you need to borrow and, therefore, the total cost of the loan.
• Type of vehicle: Whether the vehicle is new or used plays a critical role in the APR you pay. In general, new vehicles tend to have lower interest rates than used vehicles. Also, automotive brands with a track record for reliability, such as Toyota or Honda, add to the resale value of the model and could result in a lower APR.
• Personal stability: Having proof of stable employment shows the lender you have the income to repay the loan, which will give you a better APR. Lenders also look more favorably on a borrower who’s lived at their current address for some time.

What Is a Good APR Based on My Credit Score?

To get a good baseline of your APR, we’ll start with the average rate for an auto loan based on certain credit score ranges. Vehicle buyers with an excellent credit score ranging from 780 to 850 were able to get new vehicle loans for an average rate of 2.47%. Conversely, buyers with lowest-range credit scores from 300 to 500 saw average rates of 12.53%, according to Experian. Here is the break-down of interest rates based on credit scores for new and used vehicle purchases.

Average rate for new vehicle loan

Average rate for used vehicle loan

How Do I Know I Have a Good APR?

To find out what APR is best for you, the chart above will give you a good idea based on your credit score, combined with shopping for current rates from lenders online.

You can also negotiate all kinds of rates and terms when you’ve narrowed down your lender options, or lower your APR by having a higher down payment or improve your credit score before applying for a loan.

How To Get a Good APR on a Car Loan

The best way to improve your APR takes time and discipline. If your credit rating is translating into a higher APR for an auto loan, consider establishing a history of paying your bills on time and reducing some or all of your outstanding debts.

Once you’ve established a track record of consistent, on-time payments for debts like credit cards, rent or mortgage and public utilities, you’re likely to see an increase in your credit score. This will result in lower, more favorable APRs—which can save you money.

With APRs and fees varying from lender to lender, it’s important to shop around and compare quotes before deciding on a loan. Put in the due diligence upfront and find the lender that best fits your financing needs to get a loan, and car, that’s best for you.

Where Can I Get a Car Loan?

There is no shortage of lenders vying to lend you money for the car of your dreams. And with that comes a wide range of car loan package terms and rates. Here are the three most common types of auto lenders.

1. Online Lenders

The easiest place to start is through an online search, where you’ll quickly discover the countless online lenders from which to choose. You can easily find their estimated rates and terms, along with payment calculators online.

2. Financial Institutions

While online search is a great start, you’ll gather more in-depth information by visiting or pre-applying online at a financial institution, such as your local bank or credit union. Start your search online, or call directly and speak with a loan officer or auto loan expert.

Ask if they offer pre-approvals to take to the dealership, as this will give you an accurate estimate of how much you’re qualified to borrow and at what APR. It also gives you stronger negotiating power at the dealership.

3. Car Dealerships

Car dealerships can offer quick and easy financing for all buyer types through partnerships they have with auto finance companies. While it may seem easier to have the car dealer do the loan shopping for you, it’s advisable to also seek rate and terms on your own before going in so you ensure you get the best deal possible.

How To Get a Car Loan

Securing a car loan can be confusing. Here are the general steps to apply for a car loan:

1. Determine your budget. Prior to hunting for a loan, first establish your total budget for buying a car, managing payments and dealing with costs such as maintenance, gas or insurance. Additionally, take into account your present and future finances, as it could influence your ability to manage payments and expenses.
2. Check your credit score. It’s crucial to understand your credit score, as it can influence the kind of loan you can secure and your interest rate. Use a free credit score monitoring website to check your score, which has no adverse effects.
3. Shop around for loans. Considering your budget and credit score, you should shop around for the best loan that meets your needs and payment capabilities. You can find auto loans from various sources, including dealerships, banks, credit unions and online lenders.
4. Get preapproved. Securing preapproval can help you negotiate during the loan application process. It also enables you to establish a sensible budget before seeking a vehicle.
5. Select your desired vehicle. Once you clearly understand your budget, begin searching for a vehicle. Make sure to try different dealerships to ensure that you find the best prices, rates and loan terms before making your decision.
6. Finalize the auto loan. Once you choose your vehicle, be sure to check the details to ensure it matches your agreement. Also, fill out all the required documents and make sure you receive copies before you drive the vehicle off the lot.

Frequently Asked Questions (FAQs)