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What Is the Highest APR on a Car Loan?

What Is the Highest APR on a Car Loan?
Austin Kilham
Austin KilhamUpdated June 8, 2023
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The average APR (annual percentage rate) on an auto loan for a new car is about 7.00%, according to data from Edmunds for the first quarter of 2023. But interest rates, as well as the highest APR for a car loan, can range significantly, depending on the lender, your credit history, and where you live. Lenders consider a number of factors when determining how much interest to charge, including a borrower’s current employment, income, and credit history. If they view these factors favorably, they might  offer you lower rates. If not, they could charge you more, possibly even the highest interest rate for a car loan. So, what is the highest interest rate on a car? Here’s what you need to know about the highest APR for a car loan. 

Car Loan APR: A Quick Refresher

The APR on a car loan represents the interest on the loan plus the fees the lender charges to process and issue the loan. Interest is the amount you pay the lender to borrow money. How car loan interest rates work is that the lender may set their interest rate based on the prime rate (the base rate lenders use to set interest rates for loans), your credit history, and your financial standing. APR includes the interest rate and any fees for the loan, making it a more accurate representation of the cost of the loan. The APR will usually be higher than the interest rate. The federal Truth in Lending Act requires lenders to disclose the APR on a loan along with interest rates. Recommended: How to Calculate APR on a Car Loan

What Is the Highest Interest Rate for a Car Loan?

The highest interest rate for a car loan is about 25%. However, the highest car interest rate limits vary by state. And while state laws called usury laws are meant to keep lenders from charging exorbitant rates, there are loopholes in some of these laws. For instance, usury laws may apply to some types of lenders but not others in certain states.

Highest Car Interest Rates Vary by State

Each state has its own laws governing the highest car interest rate you can be charged. These usury laws can be extremely complicated. For instance, in Florida, consumers can be charged an 18% interest rate for loans of more than $4,000 and less than $25,000. But if the financing is done through a dealership, a complex formula can be used to calculate interest rates that may be far higher than that.  Oregon has a 36% cap on interest rates on loans from lenders such as banks, but the law doesn’t apply to financing through car dealerships. And some states, such as Utah, Delaware, and Idaho, don’t have laws that limit auto loan interest rates. There may also be loopholes that allow lenders to charge more than the limits of the state you live in. For example, if a lender has a loan processing office in a different state, you might end up paying more if a loan is underwritten from a state that allows higher limits. 

How to Research Your State’s Usury Laws

One of the main tips when shopping for a car loan is that it’s critical for borrowers to know their state’s usury laws to ensure that they receive a fair auto loan rate. You can check your state’s government website for usury law information. Be sure to find out the state’s usury maximum for car loans and any exceptions that might apply.

Alternatives to High APR Loans

If the car loan you’re offered has an extremely high APR, you may decide that it’s too expensive to accept. But that doesn’t mean that you’re out of options. Here are two alternatives to consider instead.  

Using a Cosigner

A cosigner on an auto loan is someone who agrees to make car loan payments on your behalf if you’re unable to do so. A cosigner is typically a family member or close friend who has a stronger credit history than you do. Your lender will consider the cosigner’s credit history when you apply for the loan, which may help you qualify for a loan with a lower APR. You can use a cosigner if you’re taking out a new auto loan or refinancing a car loan.A cosigner does not have any legal claim to the car. However, their credit score can be damaged if you don’t pay off the loan on time. 

Wait and Improve Your Credit Score

You could also put the car loan on pause for a bit and work on improving your financial situation before you apply. This could help you get a lower APR on a car loan. The best way to strengthen your credit score is to pay your bills on time and in full. You may also build your credit by paying down outstanding debts. It’s wise to check your credit report to make sure there are no errors that could be impacting your score. You can receive a free credit report from each of the three major credit reporting bureaus — TransUnion, Equifax, and Experian — or from AnnualCreditReport.com. If you spot any mistakes on the report, alert the credit bureaus immediately about correcting the errors. 

The Takeaway

While the average car loan interest rate is around 7.00%, the maximum APR you might end up paying could be much higher. To protect yourself, learn as much information as possible about your state’s usury laws. Also, do some research on average interest rates. For example, the average interest rate for deep subprime loans, which are loans given to borrowers with the worst credit, is about 13.42%. If the APR you’re being offered is higher than that, explore other loan options. It’s critical to shop around to a variety of lenders to help ensure that you’re getting the best deal possible. Also, don’t be afraid to negotiate interest rates and fees to see if you can lower your APR. Finally, if you already have a car loan with a high APR, you may be able to refinance the loan. When you refinance a car, you take out a new loan — ideally, one with a lower interest rate or better term — and pay off your old loan. You can figure out how much refinancing might save you with an auto loan refinancing calculator. Again, it pays to shop around for the best rates and terms you can qualify for. Lantern can help simplify the process by letting you compare loan offers from multiple lenders all at once. This can make it quick and convenient to find the best car loan option for you.Find and compare auto refinancing rates today with Lantern.

Frequently Asked Questions

Is 20% APR high for a car loan?
What is a good interest rate for a 72-month car loan?
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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.External Websites: 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.This article is not intended to be legal advice. Please consult an attorney for advice.
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About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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