If you’re in the market for a new car, you’re probably wondering what the average car loan interest rate is. Here’s what you need to know.
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It’s important to know what the interest rate is on your car loan before you sign the loan agreement. The interest rate is the cost of borrowing money, and it can vary widely depending on the lender, the type of loan, and your creditworthiness. In general, the higher your credit score, the lower your interest rate will be.
The average interest rate for a new car loan was 4.21% in 2019, according to NerdWallet research. But if you have good or excellent credit, you may be able to get a lower rate.
If you’re not sure what your credit score is, you can check it for free on NerdWallet.
What is a car loan?
A car loan is a personal loan that you use to finance the purchase of a vehicle. Auto loans typically have fixed interest rates and repayment terms of three to seven years. The average car loan in 2019 was just over $30,000, but you can borrow as little as $5,000 or as much as $100,000.
How is a car loan interest rate determined?
Car loan interest rates are determined by a number of factors, including the lender, the type of loan, the term of the loan, your credit score, and the age and model of the car you’re buying. In general, loans from dealerships are going to have higher interest rates than loans from banks or credit unions. And loans for new cars are going to have higher rates than loans for used cars.
If you have a good credit score, you’re likely to get a lower interest rate than someone with a bad credit score. The same is true if you’re buying a newer car – lenders see newer cars as less risky than older cars, so they charge lower interest rates on those loans. The term of the loan also affects the interest rate – shorter terms usually have lower rates than longer terms.
All of these factors come into play when lenders set car loan interest rates. So when you’re shopping for a car loan, be sure to compare rates from multiple lenders to get the best deal possible.
What is a normal car loan interest rate?
When you purchase a vehicle, the price you see isn’t just the cost of the car – it also includes interest and other additional fees that can raise the total amount you pay. When you finance a car, you may be asked if you’d like to buy points to lower your interest rate. One point typically costs 1% of your loan amount and lowers your interest rate by 0.25%.
If you have good credit, you could qualify for an annual percentage rate (APR) below 4%. If your credit is just fair, you may end up paying interest rates closer to 6%. Rates will vary based on factors like your credit score, income and debts, but here are some ranges you can expect:
For new cars:
3% for loans with terms of 36 months or less
4% for loans with terms of 48 or 60 months
5% for loans with terms of 72 months or more
For used cars:
4% for loans with terms of 36 months or less
5% for loans with terms of 48 or 60 months
6% for loans with terms of 72 months or more
How to get the best car loan interest rate
When you’re looking for a car loan, it’s important to find the best interest rate possible. The interest rate you receive will have a direct impact on your monthly car payment and the total amount of interest you pay over the life of your loan.
You may be wondering, “What is a normal car loan interest rate?” The answer depends on several factors, including your credit score, the type of vehicle you’re financing, and the current market conditions. In general, the average car loan interest rate for a new vehicle is around 4%, while the average car loan interest rate for a used vehicle is around 6%.
If you have good credit, you should be able to qualify for a lower interest rate than someone with bad credit. Likewise, if you’re financing a used car, you can expect to pay a higher interest rate than someone who’s financing a new car. Market conditions also play a role in setting car loan rates. When interest rates are low, as they are now, you can expect to get a lower interest rate on your car loan.
Follow these tips to get the best interest rate on your next car loan:
-Check your credit score: Your credit score is one of the most important factors lenders consider when determining your interest rate. Be sure to check your credit report and score before applying for a loan so there are no surprises. You can get a free copy of your credit report from each of the three major credit bureaus once per year at AnnualCreditReport.com.
-Shop around: Don’t just accept the first offer you receive. Get quotes from multiple lenders to compare rates and terms. Use an online tool like myAutoloan.com to get multiple offers with a single application so you can quickly compare rates and terms side by side.
-Know your rights: Under federal law, you have the right to cancel an auto loan within three days of signing the contract without having to pay any fees or penalties. This is known as the “right of rescission” and it gives you time to shop around and make sure you got the best deal possible on your loan.
In order to get the best car loan interest rate possible, it is important to have a good credit score. The better your credit score is, the lower your interest rate will be. For people with excellent credit, it is not uncommon to get an interest rate that is less than 4%. However, for people with bad credit, an interest rate of 15% or more is not uncommon.