# What is the Interest Rate on a Car Loan?

The average interest rate for a car loan is around 4%. But this number can vary based on credit score, type of car, and other factors.

Checkout this video:

## Introduction

An auto loan’s interest rate is the cost you pay each year to borrow money, expressed as a percentage of your loan balance. The higher your rate, the more you’ll pay over the life of the loan. Those with good credit can qualify for lower interest rates than those with poor credit.

The average interest rate for a new-car loan was 5.07% for loans of up to 60 months, according to a November 2019 report from Experian. That’s an increase of 0.12 percentage points from October and 0.36 percentage points higher than November 2018’s average of 4.71%.

## How is the interest rate determined on a car loan?

The interest rate on a car loan is determined by a number of factors. The most important factor is the prime rate, which is the rate that banks charge their most creditworthy customers. Other factors include the length of the loan, the amount of the loan, and your credit score.

### The base rate

The base rate is the minimum rate of interest that a lender will charge on a car loan. This rate is set by the lender and can change at any time. The base rate is usually a percentage of the total loan amount and may be fixed or variable.

### The length of the loan

The interest rate on a car loan is determined by the length of the loan. The longer the loan, the higher the interest rate. The shorter the loan, the lower the interest rate.

### The loan-to-value ratio

Loan-to-value ratio (LTV) is the relationship between a loan amount and the value of the asset purchased with the loan. Lenders will typically allow a higher LTV on newer cars because they hold their value better and pose less of a risk than older vehicles. A lower LTV usually means a lower interest rate because it reduces the amount of risk for the lender. You can use this calculator to estimate your loan-to-value ratio.

Your credit score is one of the most important factors in determining the interest rate you’ll pay on a car loan. A higher credit score indicates to lenders that you’re a lower-risk borrower, which means you’re more likely to repay your loan on time. As a result, you’ll usually get a lower interest rate if you have a higher credit score.

There are other factors that can affect your interest rate as well, including the type of vehicle you’re buying (new or used), the length of the loan (36 months, 48 months, 60 months, etc.), and the lender you choose. But your credit score will likely have the biggest impact on your interest rate.

### Shop around

Interest rates on car loans vary from lender to lender. It’s important to shop around for the best rate before you decide on a loan. You can use our loan comparison tool to compare different loans from a range of lenders and find one that suits you.

You can also negotiate the interest rate on your car loan. If you’ve been offered a higher interest rate than you’re comfortable with, try negotiating with the lender to see if they’re willing to offer you a lower rate.

### Get a co-signer

If you have a co-signer with good credit, you’re more likely to get approved for an auto loan and qualify for a lower interest rate. A co-signer is someone who agrees to repay the loan if you can’t.

Keep in mind that a co-signer is equally responsible for repaying the loan, so make sure you can afford the monthly payments before you ask someone to co-sign.

Your credit score is one of the most important factors in getting the best interest rate on a car loan. Lenders use your credit score to determine your risk level, and the lower your score, the higher the interest rate you’ll be offered.

There are a few things you can do to improve your credit score before applying for a car loan, such as:

-Check your credit report for errors and dispute any that you find
-Pay all of your bills on time, including credit cards and utility bills
-Reduce the amount of debt you owe
-Keep old accounts open even if you don’t use them
-Don’t open new accounts or close old ones right before applying for a loan

## Conclusion

The average interest rate on a car loan is around 4%. However, this rate can vary significantly depending on a number of factors, including your credit score, the type of car you’re buying, and the length of your loan. It’s important to shop around for the best interest rate before you commit to a loan.