The interest rate of your loan is determined by auto lenders using different factors. Your credit score is among the more influential factors.
This is why it is possible for you to determine the average or reasonable rate depending on the range of your credit score. Being aware of this before you visit the dealership or apply for an auto loan will give you a good idea of what you should expect so you can properly budget for your vehicle purchase.
Generally speaking, higher credit scores are connected with lower rates on your own loan so being aware of the possible rate that you will pay can help you determine if it would be better for you to wait for some time first and increase your credit before sending your loan application.
Average Auto Loan Rates Based on Credit Score:
The quarterly State of the Automotive Finance Market of Experian has checked the average auto loan rates that borrowers pay with scores that belong to different ranges of credit score.
In the first quarter of 2020, on average, the borrowers who have the highest credit scores nabbed less than 4% interest rates on new vehicles. The interest rates of new cars were a bit higher on average with 4.29% as the lowest rate.
Take a look at the average auto loan rates for used and new cars:
- Super prime (720 or above) – 3.65% for new cars; 4.29% for used cars
- Prime (660 – 719) – 4.68% for new cars; 6.04% for used cars
- Nonprime (620 – 659) – 7.65% for new cars; 11.26% for used cars
- Subprime (580 – 619) – 11.92% for new cars; 17.74% for used cars
- Deep subprime (579 or below) – 14.39% for new cars; 20.45% for used cars
Remember that your auto loan interest rate may vary as well if you are financing a car that you bought from an independent dealer compared to one bought from a franchise dealer. Generally speaking, you can get a slightly lower rate at franchise dealers.
Auto Loan Rates – How Do They Work?
Risk-based pricing is used to determine auto loan rates. Once a lender has determined that you are more prone to default on your loan due to your credit score as well as other factors, they will often charge you with a higher interest rate as compensation for the associated risk.
Some other factors that can affect the interest rate of your auto loan include:
- Credit history and credit score
- Loan term
- Down payment
- Used vs. new vehicle
- Debt and income
- The lender
No matter what auto loan rate you will qualify for, this will be represented in APR or annual percentage rate that might include the cost of fees and interest alike. The lender will use your rate of interest to amortize the loan’s cost. It means that you are going to pay a higher interest at the start of the term of the loan than at the end.