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What’s a Good Interest Rate on 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 28, 2022
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The average interest rate on a car loan is generally higher for used vehicles than new vehicles. For vehicles financed in the fourth quarter of 2021, the average new car loan rate stood at 3.86% compared with 8.21% for used vehicle car loans.Auto loan rates for new and used cars have steadily decreased in recent years on average. Rates previously stood at 4.3% for new car loans and 8.41% for used vehicles financed in Q4 2020, according to Experian.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 the average auto loan rate.

What Is an Interest Rate?

An interest rate is the amount a lender charges you to borrow money. The rate is usually expressed as an annual percentage rate, also known as APR. Auto loans can have fixed rates of interest as low as 0% for prime and super-prime borrowers.Auto loan borrowers are responsible for repaying their principal loan amount and any interest and fees charged over the life of the loan. The principal is the amount you borrow, and interest would represent an additional finance charge.Your interest rate 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.An auto loan with a 0% interest rate is interest-free. Generally, a borrower needs good or excellent credit to qualify for 0% APR.Because your interest rate can have such a big effect, it’s important that you get the best rate you can.

What Determines the Average Auto Loan Rate?

The interest rate a lender may charge for an auto loan or refinance will depend on the borrower’s credit score, loan amount, and loan term of repayment, among other factors.Your credit score is a numerical expression of your credit history — a chronicle of the debts you carry and the payments you’ve made and missed. Generally speaking, lenders will offer you better interest rates the better your credit is.Scores typically range from 300 to 850, with 850 being the best. Most consumers have a credit score somewhere in the range of 600 to 750. Borrowers had an average credit score of 728 for new car auto loans in the fourth quarter of 2021, data show.Your score helps lenders assess how risky it is to loan you money.Scores on the lower end suggest that you’re not very good at managing your debts and may be at risk for missing payments. To compensate for this risk, lenders usually require higher interest. New car buyers with credit scores between 300 and 500 had an average rate of 12.53% in Q4 2021 compared with 2.47% for consumers with top scores from 781 to 850. The average used car loan rate stood at 19.87% for deep subprime borrowers and 3.61% for super-prime borrowers, according to Experian’s data.Your loan term can also have a big impact on the interest rate you’ll be charged and how much you pay over the life of the loan. Loans with short terms will usually have higher monthly payments, but you’ll likely pay less in interest over the life of the loan.Longer terms translate to more months of interest payment, increasing the amount you pay in the long run. What’s more, longer terms are also likely to come with higher interest rates. View the chart below for a more detailed look at the relationship between credit score, terms, and new car loan rates using Experian data from Q4 2021.

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 choosing to buy a used vehicle or a new one.Used car financing often comes with higher interest rates because used cars represent more risk to lenders, who generally expect you to use the cars as collateral.In the fourth quarter of 2021, average interest rates for used vehicles stood at 8.21%, with the loan term averaging 67.36 months.To compare, the average interest rate for new cars was 3.86%, with an average repayment term of 69.66 months

Average Interest Rates by Term Length

As mentioned earlier, loans with short terms will usually have higher monthly payments, but you’ll likely pay less in interest over the life of the loan. The average new car loan term stood at 69.66 months with an average interest rate of 3.86% in the fourth quarter of 2021. Meanwhile, average interest rates for used vehicle car loans stood at 8.21% under an average term of 67.36 months in Q4 2021.Experian classifies borrowers in one of five risk categories: Deep subprime, subprime, nonprime, prime, or super prime. Super-prime borrowers had an average new car loan term of 64.29 months and an average rate of 2.47% in Q4 2021, representing the lowest term and interest rate across the five risk categories.Nonprime borrowers with credit scores between 601 and 660 had the highest average new car loan repayment term across the five risk categories in Q4 2021. Their term average stood at 74.33 months with an average rate of 6.07%.

Average Auto Loan Rates for Excellent Credit

Here’s a table showing average loan rates for super prime borrowers in the excellent credit score range as of Q4 2021 using Experian and RateGenius data:

Average Auto Loan Rates for Good Credit

Here’s a table showing average loan rates for prime borrowers in the good credit score range as of Q4 2021 using Experian and RateGenius data:

Average Auto Loan Rates for Fair Credit

Here’s a table showing average loan rates for nonprime or near-prime borrowers in the fair credit score range as of Q4 2021 using Experian and RateGenius data:

Average Auto Loan Rates for Bad Credit

Here’s a table showing average loan rates for subprime borrowers in the bad credit score range as of Q4 2021 using Experian and RateGenius data:

Average Auto Loan Rates for Deep Subprime Credit

Here’s a table showing average loan rates for deep subprime borrowers as of Q4 2021 using Experian data:

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

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 loan refinancing.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. When weighing the benefits of refinancing, be sure to consider additional costs like fees and prepayment penalties as well as the temporary effect it may have on your credit score.

The Takeaway

In the first quarter of 2021, the best average interest rate for an auto loan was 2.41%, but that only applied to people with the highest credit scores. The interest rates you’re offered will vary depending on your financial circumstances. If you’ve got superb credit and you’re able to make a substantial down payment, you may qualify for the lowest interest rates out there. And if you don’t, there are steps you can take to help you achieve the best interest rate possible. Refinancing your auto loan with a better interest rate is always a possibility in the future. To learn more, visit Lantern by SoFi to compare auto loan refinancing rates and explore your options so you can find the loan that’s right for you.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.SOLC0621109

Frequently Asked Questions

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?

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.
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