Key Takeaways
At the beginning of 2024, the average interest rate for a new car loan was 6.73 percent, while the average interest rate for a used car loan was 11.91 percent. While your credit score plays a key role in determining your interest rate, other factors also come into play, including the lender, the amount you borrow, the length of the loan, and your financial situation. The best way to ensure a competitive car loan rate is to shop around for different loans and work on improving your credit score.
If you're in the market for a car, you're probably thinking about auto loan interest rates. Your credit score determines your auto loan interest rate. According to Experian's State of the Auto Finance Market report, the average auto loan interest rate for new cars in the first quarter of 2024 was 6.73%, and for used cars it was 11.91%.
Generally, the lower your score, the higher your annual percentage rate (APR). However, you don't need a perfect score to get a good rate. To find the best auto loan rates, it's wise to shop around and work to improve your credit score if it's not in the best shape.
Average car loan interest rates by credit score
Lenders base their interest rates primarily on your credit score, but even if you don't have a top-notch credit score, you can still get a decent interest rate.
To see how a higher credit score can affect your interest rate, check out the average car loan interest rates by credit score.
Personal FICO Score Average New Car Loan Rate Average Used Car Loan Rate 781-850 5.38% 6.80% 661-780 6.83% 9.04% 601-660 9.62% 13.72% 501-600 12.85% 18.97% 300-500 15.62% 21.57%
Source: Experian Auto Finance Market State Q1 2024
Average car loan interest rates by state
Where you live also affects your interest rate, so find out the average interest rate for an auto loan in your state.
Factors that affect car loan interest rates
While your credit score plays a big role in determining your interest rate, there are other factors to consider along with it.
Credit score
The two scores most commonly used in underwriting an auto loan are FICO and VantageScore, both of which take into account several measures of financial health, including payment history, credit utilization ratio, credit mix and average age of your accounts.
There are slight differences in the number of indicators used and how they are weighted, but both scores fall between 300 and 850. As the chart shows, the best rates apply to buyers with scores in the mid-600s and above.
Lenders may instead use an auto industry-specific scoring system such as the FICO Auto Score, which ranges from 250 to 900. These scores consider the same factors but place more emphasis on risk factors related to your ability to repay the auto loan.
Lender
Different lenders have different standards for credit approval. While all lenders will take into account your credit score, income, and debt-to-income ratio, different lenders have different standards they will accept. Some also take into account your education and work history.
Additionally, some lenders offer lower interest rates than others.
Loan amount
The amount you can borrow takes into account both the price of the vehicle and your down payment. If you don't put down more than the required amount, lenders may see you as an increased risk. They may raise your interest rate to compensate.
Loan Term
Typically, the longer the loan term, the more interest you accumulate and the more interest you pay. Also, lenders may charge higher interest rates for longer loan terms.
This is because it's perceived as a greater risk to lenders: the longer the term of the loan, the greater the chance that you won't pay it back in full.
Economic and market conditions
Broader market factors also influence the setting of the industry's floor interest rates. When the federal funds rate, set by the Federal Reserve, is higher, it costs more for lenders to borrow money. As a result, interest rates are more likely to be higher.
The Federal Reserve's current target interest rate is 5.25% to 5.5%, the highest it has been in 22 years, but the central bank has not raised its benchmark rate since July 2023. Experts predict that interest rates for those with strong credit will fall slightly this year.
People with poor credit are less likely to qualify for relief in 2024. If that’s you, focus on comparing car loan interest rates for people with bad credit.
How to get a lower interest rate on a car loan
Regardless of your credit score, there are a few ways to increase your chances of getting a competitive interest rate.
Compare: Shop around and compare auto loan rates from multiple lenders, including banks and credit unions. Not all lenders report to credit bureaus, so if you want to build credit, make sure to choose a lender that does. Apply for pre-approval: Apply to at least three lenders before settling on one. You'll need to provide personal and employment information. Pre-approval requires a hard credit pull, which will temporarily lower your score by a few points. So it's best to keep your application period to 14 days to avoid one drawback. Make a larger down payment: Making a larger down payment reduces the amount you need to borrow. By borrowing less, you reduce the risk the lender takes on. Less risk means a lower interest rate. Experts recommend aiming for at least 20 percent of the purchase price of the car. Get a co-signer: If you have a low credit score, consider asking a family member or trusted friend with a good credit score to co-sign your auto loan. The risk to the lender is lower because the cosigner assumes the debt if you can't repay it – just remember that your relationship could be strained if you can't repay it.
Conclusion
The lowest car loan rates are usually available to borrowers with near-perfect credit scores. While there's no guarantee you'll get the amount your credit level deserves, keep this in mind when shopping for a good loan.
You can get pre-qualified for a car loan from lenders online or offline to see the interest rates you qualify for.