What Is a Good Auto Loan APR?

Why there is no single good rate, what moves it, and how a few points change what you pay.

Shoppers often ask what a good auto loan APR is. The honest answer is that it depends on your credit, the vehicle, the term, the lender and the market on the day you apply. Instead of chasing one number, it helps to understand what drives the rate and how much a small difference costs.

What affects your rate

• Credit profile: a stronger credit history generally earns a lower APR.
• Loan term: longer terms often carry higher rates.
• New or used: used-car loans can cost more than new-car loans.
• Down payment: putting more down lowers the lender's risk.
• Lender type: banks, credit unions, dealers and manufacturers' finance arms price differently.
• Market conditions: benchmark interest rates move, so older figures go stale quickly.

What a few points cost

Consider a $27,500 loan over 60 months. At 5.5% APR the payment is $525.28 and total interest is $4,017. At 7.5% the payment is $551.04 and interest is $5,563. At 9.5% the payment is $577.55 and interest is $7,153. Between the lowest and highest rate, you would pay about $3,136 more over the loan.

APR versus interest rate

APR includes certain required finance charges, so it is the better figure for comparing offers. Ask for the APR, the amount financed and the total of payments in writing.

Dealer financing versus your own

Dealers can arrange financing, sometimes at a rate marked up above what the lender approved. Getting preapproved from a bank or credit union first gives you a benchmark. If the dealer can beat it, you benefit; if not, you already have a better option.

Promotional rates

Manufacturers sometimes advertise very low rates for well-qualified buyers, occasionally in place of a cash rebate. Compare the lower rate against the rebate by calculating total cost both ways. A rebate paired with a slightly higher rate can sometimes be cheaper overall.

Ways to improve your offer

• Check your credit reports for errors before applying.
• Pay down credit card balances to improve your credit utilization.
• Shop multiple lenders within a short window so inquiries are treated together by many scoring models.
• Consider a shorter term or larger down payment.
• Add a co-signer only if you understand they are equally responsible.

Watch the add-ons

Extended warranties, gap coverage and fees are sometimes rolled into the loan. They increase the amount financed, and you pay interest on them. Decide whether each is worth its cost and whether you could buy it separately.

A simple approach

Get two or three quotes, compare APR on the same term, and choose the lowest total cost you can afford comfortably. Rates change often, so verify current offers directly with lenders. Test your own numbers in the auto loan calculator.

New versus used vehicles

Lenders often quote lower rates on new cars because the collateral is worth more and holds value more predictably. Used-car rates tend to be higher, and older, higher-mileage vehicles can carry higher rates still. Even so, the lower purchase price of a used car can mean a smaller loan and less total interest, so compare the all-in cost rather than the rate alone.

Check the details after you apply

Once you have an offer, confirm the APR, term, payment, any fees and the total of payments match what you were quoted. Ask about prepayment penalties, since paying a car loan off early is a simple way to save interest if your rate is high.

Important

This guide is educational and not individualized financial advice. Loan terms vary by borrower, lender and market, so confirm details in the official disclosure.