What Is a Typical Car Loan Interest Rate?

If you’re in the market for a car loan, you’re probably wondering what the average interest rate is. Here’s what you need to know.

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Most car buyers don’t realize that the interest rate on their auto loan plays a big role in how much money they’ll ultimately pay for their car. In fact, even a difference of just a few percentage points can add up to hundreds or even thousands of dollars over the life of the loan. So if you’re in the market for a new car, it’s important to understand how car loan interest rates work and what factors can affect your rate.

How Interest Rates Work

The interest rate on a car loan is the cost of borrowing money from the lender. The interest rate is the percentage of the loan amount that the lender charges for the use of the money. Interest rates can be fixed or variable. A fixed interest rate means that the interest rate will not change during the life of the loan. A variable interest rate means that the interest rate can change during the life of the loan.

The prime rate

The prime rate is the lowest rate at which money can be borrowed from commercial banks by non-banks. It is used as a benchmark by banks to set rates on many consumer loan products, such as credit cards, home equity lines of credit and car loans. The prime rate does not change at regular intervals. It changes only when the nation’s “largest banks” decide on the need to raise, or lower, their “base rate.” The prime rate is usually referred to be an index that is used to calculate adjustable rate loans.

The federal funds rate

The federal funds rate is the rate at which banks can borrow money from the federal reserve to meet their reserve requirements. When the federal funds rate goes up, it indicates that the economy is doing well and that banks are in demand for loans. This usually results in higher interest rates on car loans.

The discount rate

The discount rate is the rate at which commercial banks can borrow money from the Federal Reserve. The discount rate is important because it influences other interest rates, including the federal funds rate and the prime rate. When the discount rate goes up, other interest rates usually follow.

How Car Loan Interest Rates Are Determined

The average car loan interest rate for a new car was 4.21% as of August 2020, according to Experian. Loan interest rates will vary based on your credit score, the length of the loan, the dealer, and the type of car. In this article, we’ll dive into how car loan interest rates are determined and how you can get the best rate on your next car loan.

Credit score

Interest rates on car loans are determined by a number of factors, the most important of which is your credit score. Your credit score is a number that represents your creditworthiness, or how likely you are to repay a loan. The higher your credit score, the lower your interest rate will be.

Other factors that can affect your interest rate include the type of car you’re buying, the length of the loan, and the down payment you’re able to make. In general, new cars will have higher interest rates than used cars, and loans with longer terms will have higher rates than those with shorter terms. Down payments can also affect interest rates; larger down payments usually mean lower rates.

If you’re interested in getting a car loan, it’s a good idea to shop around and compare rates from different lenders before you decide on a loan. You can use an online tool like Credio’s car loan calculator to compare rates from multiple lenders at once and find the best deal for you.

Loan term

One of the key factors lenders will look at when determining your car loan interest rate is the length of your loan, or the loan term. The average new car loan is about 68 months, or just over five and a half years. Shorter loans generally have lower interest rates because they’re considered less risky for lenders.

Loan type

One of the main factors that determines your car loan interest rate is the type of loan you choose. There are three main types of car loans: dealer financing, bank financing, and manufacturer financing. Each has its own distinct set of interest rates.

Dealer financing is when you get a loan through the dealership where you are buying your car. The dealer will work with one or more lending partners to get you the best interest rate possible. The benefits of dealer financing include convenience and potentially lower interest rates. The downside is that you may end up paying more for your car overall because the dealer may mark up the interest rate on your loan.

Bank financing is when you get a loan from a traditional bank, such as a local credit union or national bank. The benefits of bank financing include potentially lower interest rates and repayment terms, as well as the ability to shop around for the best deal. The downside is that it may take longer to get approved for a bank loan than it would to get approved for dealer financing.

Manufacturer financing is when you get a loan from the manufacturer of the car you are purchasing. Manufacturer loans typically offer lower interest rates than other types of loans, but they may have stricter eligibility requirements.

Down payment

Your down payment is the amount of cash you bring to the table when you finance a vehicle. It’s the portion of the car’s total sales price that you pay out of your own pocket (as opposed to borrowing through a loan).

The more cash you’re able to put down on a car, the lower your monthly payments will be. That’s because a larger down payment lowers the overall amount you need to finance, and therefore reduces your loan interest rate.

Making a large down payment also has other advantages. It can help you avoid having to make monthly payments for an extended period of time, and can keep your total loan amount lower (and therefore interest charges lower) even if you do finance for a longer term.

Current Auto Loan Interest Rates

Car loan interest rates change frequently, so it’s important to keep track of the current rates. The average interest rate for a new car loan is about 4.5%, but it depends on your credit score, the type of car you’re buying, and the length of your loan.

If you have a good credit score, you can probably get a lower rate. If you’re buying a used car or a less expensive car, you may be able to get by with a higher rate. And if you want to pay off your loan more quickly, you may be able to get a shorter loan with a slightly higher interest rate.

Here are some average rates for new and used cars from Bankrate.com:

New cars

3-year loan: 4.47%
5-year loan: 4.57%

Used cars

3-year loan: 6.34%
5-year loan: 6.45%

How to Get the Best Car Loan Interest Rate

The average car loan interest rate for a new car was 4.21% in 2019, according to Experian. But that’s just the average. Your interest rate depends on factors like your credit score, loan term, and the type of car you’re buying. You can get a lower interest rate by doing some research and shopping around. In this article, we’ll give you some tips on how to get the best car loan interest rate.

Improve your credit score

One of the best ways to get a low interest rate is to have a good credit score. Your credit score is a measure of how likely you are to repay a loan, and it’s also one factor that lenders use to determine your interest rate.

If your credit score is in good shape, you may be able to get a low interest rate on your car loan. If it’s not, you may still be able to get a loan, but you may have to pay a higher interest rate.

There are a few things you can do to improve your credit score:
– Make all of your payments on time
– Keep your balances low
– Use credit counseling if you have debt problems

Shop around

You can get a lower car loan interest rate by shopping around. Most car loan companies want your business, so they should be willing to give you their best interest rate. You should compare offers from at least three different lenders to find the best one. You can shop around by going to your local bank or credit union, or by applying for a loan online.

Checking your credit score and fixing any errors on your credit report can also help you get a lower interest rate. Lenders use your credit score to determine how likely you are to default on your loan, so the higher your score, the better interest rate you’ll get. You can get your free credit score from several sources, including Credit Karma, Credit Sesame and Quizzle.


The best way to get a low interest rate is to simply ask for it. Many people are afraid to do this, thinking the lender will give them a higher rate in retaliation. But the fact is, you have nothing to lose by asking. The lender will either give you the lower rate or explain why it’s not possible.

If you don’t feel comfortable negotiating on your own, you can always ask a friend or family member to do it for you. Just make sure they know what you’re looking for and are comfortable with the idea of negotiating.

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