Key takeaways:
- Current average car loan interest rates are 3.86% for new cars and 8.21% for used vehicles.
- Your credit score, credit history, and loan terms can affect your interest rate.
- Refinancing your car loan may lower your monthly payment or help you secure a better interest rate.
Car loan interest rates can feel like a lottery, especially if you’re new to auto financing. If the odds are in your favor, you may be able to get a prime car loan rate. If not, you’ll get stuck with higher monthly payments.
In reality, auto loan rates aren’t random. In this guide, we’ll dive into the ins and outs of car loan interest rates. We’ll also discuss average car loan interest rates by credit score and how you can get the best rate on your loan.
But first, let’s take a look at what interest is in the context of a car loan and how it’s calculated.
What is the interest rate on a car loan and how does it work?
Car loan interest is essentially the “rent” you pay to borrow money from a bank, credit union, or lending company. It’s often included in the total cost of your loan, which is your annual percentage rate (APR).
The interest varies based on several factors, including the amount of money you borrow, how long you borrow it, and your financial track record. For instance, if you have a solid history of repaying loans on time and keeping your debt to a minimum, you’ll likely qualify for a lower interest rate. That’s because you represent less risk to your lender.
The opposite is also true. If your credit report shows numerous red flags, such as missed payments or loans in default, you represent more risk to your lender. Your interest rate will likely be higher.
What’s the average interest rate on a car loan?
In 2022, the average rate on a car loan falls around 4.07% for new cars and 8.62% for used cars. However, your rate may change based on several factors:
- Your credit score
- The length of the loan
- Your decision to purchase a new or used vehicle
Average car loan interest rate by credit score
You won’t know exactly how much interest you’ll pay until you submit your loan application and get approved for a loan. However, you can get a rough estimate of your APR based on your credit score.
Your credit score is a 3-digit number ranging from 300 to 850. Higher scores are considered better because they represent a good credit history. Lower scores tend to indicate a poor financial track record.
If your credit score is high and you land in the super-prime range, you’re more likely to qualify for a low interest rate (think, below 3% for a new car and 4% for a used car). But if your score falls below 600 and you land in the subprime range, you could get a rate of 10% or higher. This will result in more expensive monthly payments.
If your credit score is higher than 781, creditors would say you have a super-prime credit rating. Borrowers with super-prime credit ratings tend to get approved for loans with the lowest interest rates available.
Rates usually increase as you move downward through the ranges (prime, near prime, subprime, and deep subprime). Borrowers with deep-subprime scores receive the highest interest rates.
Let’s take a closer look at the average rate for a car loan based on your credit score:
Credit Score Range |
Average APR for a New Car Loan |
Average APR for a Used Car Loan |
| Super Prime (781–850) | 2.47% | 3.61% |
| Prime (661–780) | 3.51% | 5.38% |
| Near Prime (601–660) | 6.07% | 9.8% |
| Subprime (500–600) | 9.41% | 15.96% |
| Deep Subprime (300–499) | 12.53% | 19.87% |
Source: Auto Finance Insights: State of the Automotive Finance Market
Interest rates based on loan length
Shorter loan terms tend to come with higher monthly payments because you have less time to repay your loan. Longer-term loans have higher interest rates because you “rent” the money for a longer period.
For example, the average interest rate on a 6-year car loan is about 0.3% higher than the rate on a 3-year loan.
Average interest rate on new cars vs. used cars
Did you know deciding to buy a new or used car can impact your interest rate? In fact, it’s one of the most important factors lenders consider when setting your rates.
The average interest rate on new cars tends to be lower because a new car is less likely to break down. Used cars often come with higher interest rates because they’re considered riskier investments. Still, the lower sales prices may balance out higher interest rates.
What’s a good interest rate on a car loan?
Truthfully, there’s no single “good” interest rate on a car loan. Instead, your rate is based on factors like your credit score, credit history, and average market rates.
Instead, you can determine if you have a good interest rate by checking the average APR for your credit score. If you have excellent credit and received a new car loan offer with a 10% interest rate, you can likely qualify for a lower rate elsewhere.
Similarly, if you have a good credit score and receive an offer with a prime rate, you’re probably getting a good deal.
How to get the best car loan interest rate
Car prices hit record highs in 2022, making it even more important to get the best rate on a vehicle loan. Fortunately, you don’t have to rely on the luck of the draw. Instead, consider the following tips to help you get the best rate possible:
1. Get familiar with your credit score
Knowledge is power, especially when it comes to your credit score. Unfortunately, many people aren’t sure how to check theirs.
Your bank or credit card company may provide you with a free credit score. You can also check it for free on numerous websites. Just make sure to review the terms and avoid any sites that require a credit card.
After reviewing your credit score, compare it to the average auto loan interest rates listed above. You may not be able to determine your exact rate until you get approved for a loan. But you’ll have a better idea of how much your monthly payments could be.
2. Shop around for the best rates
It’s tempting to accept the first loan offer you receive, especially if you need a new car. However, taking the time to research your options can really pay off. With that in mind, shop around and compare offers from multiple lenders first.
Some auto retailers offer special rates for in-house financing. You may also be able to get a better deal from your bank or credit union, especially if you’ve been a customer for years. You may even find good loan terms from an online lending platform.
3. Make a larger down payment
Did you know your down payment can affect the interest rate on your auto loan? Typically, putting more money down upfront means you’re less of a risk. Saving up to make a larger down payment isn’t easy, but you may be able to qualify for a better rate if you do.
4. Boost your credit score
Your credit score can impact some important parts of your life. Luckily, there are steps you can take to boost it. Find tips and tricks in our guide to building excellent credit. In the meantime, look out for ways to pay off debt and prioritize making timely payments on existing lines of credit.
5. Renegotiate your terms
Some loan providers and financial institutions allow you to revisit your loan terms after a certain period of time. If that’s the case, you may be able to negotiate a lower interest rate, lower car payments, or a shorter loan term to help you save. You could also agree to set up automatic payments in exchange for discounted rates.
6. Refinance your auto loan
If you’ve financed a car loan and your rate is higher than average based on your credit score, don’t worry. You may be able to refinance your auto loan and get a lower rate.
When you refinance an auto loan, you replace your original loan with a new car loan. Ideally, your auto refinance loan will have better terms, like competitive rates or more affordable monthly payments.
Almost anyone can apply to refinance a car loan, as long as their name is on the title. However, refinancing can makes more sense for some borrowers. For instance, it’s a good idea to refinance if your credit score has increased or your financial circumstances have improved. You’re more likely to qualify for a loan with a prime or super prime rate.
And if your financial situation hasn’t improved, don’t worry. You may still be able to refinance your car loan and get a lower rate or get out of an upside-down auto loan.
Want better car loan interest rates? Start here
Interest rates may be rising, but that doesn’t mean you’re stuck with a high interest rate forever. Even if you recently signed onto a new auto loan with a higher rate, you may be able to refinance your loan through Upstart and find a better deal.
Our model looks at more than your credit score and use your education¹ and work experience to find you loans from our partner lenders. As a result, you may be able to qualify for an affordable auto refinancing loan with a lower monthly payment or competitive APR.
Check your rate today to learn more about your loan options and see how much you could save by refinancing.
¹Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan.
Car refinance loans not available in IA, MD, NV, or WV.
Won't affect your credit score¹