App version: 0.1.0

What Is the Average APR for a Car Loan?

What's a Good Interest Rate on a Car Loan?; It's important to take the interest rate of your car loans into account. Learn how to tell if you're getting a good rate.
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated March 22, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
The average interest rate on a car loan is generally higher for used vehicles than new vehicles. A new car loan in the fourth quarter of 2022 had an average interest rate of 6.07% compared with a rate of 10.26% for used car financing, data show.You may have a good interest rate if your car loan’s annual percentage rate (APR) is under 6.07% on a new car or below 10.26% on a used car. The average APR for car loan financing may be higher when the Federal Reserve raises its target range for the federal funds rate and lower when the Fed cuts its benchmark target rate.Consumers with good credit scores tend to qualify for lower interest rates than consumers with bad credit scores. Below we highlight how your personal creditworthiness can impact your average car loan interest rate.

What Is an Interest Rate?

An interest rate is the percentage amount a lender charges you to borrow money. The interest rate and upfront fees are usually expressed as an annual percentage rate (APR). Auto loans can have fixed rates of interest as low as 0%. A 0% APR car loan is the best interest rate that some lenders may offer to borrowers with good or excellent credit.If 0% APR is the best rate, what is a good interest rate on a car? A good interest rate on a car is one that’s better than the average APR for car loan financing. As mentioned earlier, you may have a good interest rate if your APR is under 6.07% on a new car loan or below 10.26% on a used car loan.The average car loan interest rate stood at 6.07% for new vehicles in the fourth quarter of 2022, according to Experian. Meanwhile, the average used car loan interest rate stood at 10.26%. Lenders may charge simple interest or precomputed interest, but auto loan interest rates in most cases are based on a simple interest formula.

What Is APR?

As mentioned above, APR is the annual percentage rate on a loan. APR refers to all finance charges on a loan, which can include interest and fees. A 0% APR loan is a loan that doesn’t charge interest or upfront fees.

Interest vs APR

Interest is a finance charge on a loan, while APR represents the total cost of all finance charges. APR generally highlights your total borrowing costs because it includes interest and upfront fees.Your interest rate and overall APR can have a big impact on how much money you pay over the life of a loan.For example, if you took out a five-year $25,000 loan to buy a new car with a 2.5% interest rate, you’d end up paying $1,621.04 in interest over the life of the loan. If you took out the same loan but with a 6.5% interest rate, you’d pay $4,349.22 in interest over the life of the loan.Because your interest rate can have such a big effect, it’s important that you get the best rate you can.Recommended: 10 Types of Car Loans

What Determines the Average Auto Loan Rate?

The interest rate a lender may charge for a car loan will depend on the borrower’s credit score, loan amount, and loan term, among other factors mentioned below:

Credit Score

Your credit score is a numerical expression of your credit history — a chronicle of the debts you carry and the payments you’ve made or missed. The average car loan interest rate by credit score shows borrowers with good credit generally get better rates of interest than borrowers with bad credit.Credit scores typically range from 300 to 850, with 850 being the best. Borrowers had an average credit score of 730 for new car loans in the fourth quarter of 2022, data show.If you have subprime or deep subprime credit scores between 300 to 600, you may pay higher rates of interest than borrowers with prime or super prime credit scores between 661 and 850. Borrowers with bad credit scores between 300 and 500 had an average rate of 13.42% for new car loan financing in Q4 2022 compared with 4.75% for consumers with excellent scores between 781 and 850, according to Experian’s State of the Auto Finance Market report.

Term Length

Car loan term lengths can impact the interest rate you get and the finance charges you pay. A longer repayment term generally offers lower monthly payments, but long-term auto loans may charge higher rates of interest than car loans with shorter terms.Car loans may charge daily simple interest, so your total interest costs may be lower with a shorter term. Paying interest over the life of a loan can add up.A 144-month auto loan, for example, can cost significantly more than a 72-month car loan. If you get a $100K car loan with a 6% interest rate and 12-year term, you may pay $40,522.43 in total interest over 144 months, while you may pay up to $19,324.79 in total interest over six years if you get similar financing on a 72-month car loan.Long-term auto loans can help you finance the purchase of luxury or ultra premium cars. Lenders of exotic car financing may offer 144-month or 180-month car loans at higher rates of interest than 72-month car loans issued by a bank.

Down Payment

Making a down payment on a car can reduce the amount of money you need to borrow when financing a car purchase. Making a larger down payment on a car may prevent you from getting an upside down car loan. Your car loan is upside down or underwater if your auto loan debt is greater than the value of your car.A larger down payment can minimize your borrowing costs and monthly payment. A higher down payment can also bolster your equity stake in the car and help you avoid going underwater. A lender calculating car loan APR may offer you a lower interest rate based upon the size of your down payment.

New vs Used Car

The average used car loan rate is typically higher than the average new car loan rate. Cars generally depreciate in value as they age, so a used car is typically less reliable and less valuable than a new version of the same make and model.Lenders may view depreciation as a risk factor, and this may explain why the average interest rate on a used car loan is typically higher than the average interest rate on a new car loan.As mentioned earlier, the best interest rate on a car loan is 0%. Certain lenders may offer 0% APR on a new car loan, but lenders may not be willing to offer 0% APR on a used car loan. Finance charges add to the principal cost of your loan.

Amount Borrowed

The amount of car loan financing you borrow can influence the interest rate you get. Borrowing $244,000 to buy an exotic car may give you an interest rate of 8.02% on a 180-month term. Borrowing $27,000 to buy a basic new car, meanwhile, may give you a 3.9% interest rate with a 60-month term.View the table below for a more detailed look at the relationship between credit score, terms, and new car loan rates using Experian data from Q4 2022:
Borrower risk tierCredit score rangeAverage loan term (months)Average loan rate
Deep subprime300 to 50073.0113.42%
Subprime501 to 60074.0210.79%
Nonprime601 to 66074.488.12%
Prime661 to 78070.995.82%
Super prime781 to 85063.814.75%

How Average Interest Rates Vary for New and Used Vehicles

One of the biggest factors in determining the interest rate on car loans is whether you’re buying a new or used car.Used car financing often comes with higher interest rates because used cars represent more risk to lenders. As mentioned earlier, a used car is generally older, less reliable, and not as valuable as a new version of the same make and model.In the fourth quarter of 2022, the average used car loan interest rate stood at 10.26%, with the loan term averaging 68.01 months.To compare, the average car loan interest rate for new cars stood at 6.07%, with an average repayment term of 69.44 months.

Average Interest Rates by Term Length

As mentioned earlier, car loan term lengths can impact the interest rate you get and the finance charges you pay. A longer repayment term generally offers lower monthly payments but could charge you higher rates of interest than car loans with shorter terms.Borrowers with excellent credit may favor car loans with shorter terms. Super prime borrowers had an average term of 63.81 months and average rate of 4.75% on new car loans in the fourth quarter of 2022, data show.Borrowers with fair credit may favor car loans with longer terms. Borrowers with near-prime credit scores between 601 and 660 had an average term of 74.48 months and average rate of 8.12% on new car loans in Q4 2022, according to Experian.Navy Federal Credit Union in February 2023 advertised the following rates on new car loans:
Car loan term lengthBest interest rate
0–36 months4.54%
37–60 months4.74%
61–72 months5.04%
73–84 months6.94%
85–96 months7.84%

Average Auto Loan Rates for Excellent Credit: 781 to 850

Here’s a table showing average loan rates for borrowers in the super prime or excellent credit score range, according to recent Experian and RateGenius data:
Risk categoryCredit scoreAverage new car loan rateAverage used car loan rateBest auto refinance rate (Nov. 2022)
Super prime781–8504.75%5.99%3.09% (credit score 750+)

Average Auto Loan Rates for Good Credit: 661–780

Here’s a table showing average loan rates for borrowers in the prime or good credit score range, according to recent Experian and RateGenius data:
Risk categoryCredit scoreAverage new car loan rateAverage used car loan rateBest auto refinance rate (Nov. 2022)
Prime661–7805.82%7.83%4.14% (credit score 700–749)

Average Auto Loan Rates for Fair Credit: 601–660

Here’s a table showing average loan rates for borrowers in the nonprime, near prime, or fair credit score range, according to recent Experian and RateGenius data:
Risk categoryCredit scoreAverage new car loan rateAverage used car loan rateBest auto refinance rate (Nov. 2022)
Nonprime601–6608.12%12.08%4.87% (credit score 640–699)

Average Auto Loan Rates for Bad Credit: 501–600

Here’s a table showing average loan rates for borrowers in the subprime or bad credit score range, according to recent Experian and RateGenius data:
Risk categoryCredit scoreAverage new car loan rateAverage used car loan rateBest auto refinance rate (Nov. 2022)
Subprime501–60010.79%17.46%7.32% (credit score under 640)

Average Auto Loan Rates for Deep Subprime Credit: 300–500

Here’s a table showing average loan rates for borrowers in the deep subprime risk category as of Q4 2022, according to Experian data:
Risk categoryCredit scoreAverage new car loan rateAverage used car loan rateBest auto refinance rate (Nov. 2022)
Deep subprime300–50013.42%20.62%undefined
Recommended: What Is Considered a Bad Credit Score?

How Is Inflation Affecting Auto Loan Interest?

The Federal Reserve in 2022 started raising its target range for the federal funds rate to help bring inflation under control. Inflation refers to price increases for consumer goods and services.When the Fed raises its benchmark target rate to fight inflation, it generally causes banks, credit unions, and other financial institutions to raise interest rates on consumer loans.Average auto loan interest rates have increased since the Fed began its rate-hiking campaign in March 2022. Average new car loan rates went from 3.88% in the fourth quarter of 2021 to 6.07% in the fourth quarter of 2022, according to Experian data.The cost of borrowing money can increase when inflation is high. Is auto loan interest tax deductible? Self-employed individuals who pay car loan interest on vehicles they own and use for business purposes may claim a business expense deduction on federal taxes. 

How to Get a Good Interest Rate on Refinancing an Auto Loan

Here are some tips that may help you get a good auto refinance rate:

Talking to Your Lender

The first step in getting a good auto loan refinance rate is shopping around and comparing offers. Banks, credit unions, and online lenders may offer different terms and conditions for auto refinancing.

Shopping Around

If you have an auto loan and your credit score has improved since you got it, you may qualify for a better interest rate under refinancing. Weighing the pros and cons of refinancing a car and shopping around can help you determine whether refinancing is right for you. 

Changing Your Terms

Changing your terms with an auto refi loan can be appealing if it gives you new conditions that are right for you. One of the possible downsides to auto refinancing is it may hurt your credit score. Applying for an auto refi loan may trigger a hard pull inquiry into your credit report, which can cause your credit score to drop by up to 10 points.

Auto Loan Refinancing Rates

Refinancing your auto loan may be right for you if you can secure a lower interest rate. A car loan can help you buy a new or used car, and you may have the option of immediately refinancing with another lender if you’re unhappy with your car loan terms.Find and compare auto loan refinance options with Lantern by SoFi.

Frequently Asked Questions

What is considered a good interest rate on a car loan?
Are interest rates on auto loans going up?
What is the average auto loan rate?
What is the average auto loan rate for a used car?
What is the average auto loan rate for a new car?
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
LCAU0123007

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
Share this article: