Which Interest Rate for a Car Loan Is Good?

Aug 26, 2022 By Susan Kelly

The average interest rate on a new vehicle loan in the first quarter of 2022 was 4.07%, while the average rate on a used vehicle loan was 8.62%, as reported by Experian. A person's interest rate may be affected by their credit score, the year of their vehicle, and the terms of their loan. Average rates had decreased since the first quarter of 2021, peaked at 4.15% for new and 8.82% for used, respectively.

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New car loans had an average interest rate of 4.07% in the first quarter of 2022, while used car loans had an average interest rate of 8.62%, as reported by Experian in its State of the Automotive Finance Market report.

These rates represent a slight decline compared to the 4.15 percent and 8.82 percent charged on auto loans a year ago for new and used vehicles.

And That Includes Your Credit Report

Your interest rate is determined by several factors, including your credit score, the type of vehicle you plan to buy, and your location. You can apply for car loans at the dealership where you want to purchase your vehicle or shop around for pre-approvals from various financial institutions such as banks, credit unions, and alternative lenders.

Experian found that a borrower's credit history and whether the car is new or used were the most significant factors in determining the interest rate on a car loan.

Buying a new or used car affects the average interest rate by the buyer's credit score.

Average loan interest on a brand-new car

Monthly payments for the identical car would be $656 for someone with an excellent credit score and $831 for someone with a poor credit score, a difference of $175 if the only variable in the equation were the interest rate.

Investigate the differences in terms of new-car and used-car loans.

A higher interest rate could be the outcome of buying a secondhand car. It's possible that buying a new car will end up costing more than buying a used one. While credit history does play a role in the interest rate you pay for a car loan, the rates for new and used cars are very different. Using Experian data, the insider identified the difference between the new and used interest rates. The average increase in financing costs from purchasing a used car to a new one is 4%.

Average loan rates by loan term

Cheaper interest rates are available for new auto loans with 60 months or less.

The terms of your loan determine your interest rate. The interest rate charged on loan increases in proportion to its length.

After 60 months, your loan's risk increases, and the interest you must pay to borrow money rises even more dramatically. The average interest rate for a 72-month loan on a new car is around 0.3% more than the average interest rate for a 36-month loan.

Be careful who you pick as your lender.

When you begin shopping around for auto loans, you will find that not all lenders are created equal. Learn about the average interest rates charged by lenders for both new and used car loans by looking at the examples provided.

New vehicles start at 3.79%, used vehicles at 3.99%, and refinancing/lease buyouts at 4.89%.

Starting interest rates for a new Navy Federal loan are 2.29%, while rates for a refinanced loan are 2.29% and rates for an already-existing loan are 2.69%.

U.S. Banks Offer New and Used Purchase and Refinancing Rates of 3.54 percent to 5.74 percent

Lightstream: 5.49-9.54%, New/Used/Refinance: 3.49-9.54%, Lease Buyout: 4.49-10.49%

Financial Services Group

Financing rates for retailers provided by Financial Services Group vary from 2.14 percent to 14.54 percent. Optional lease buyout (3.64%-20.04%), refinancing (2.64%-19.04%), or private party purchase (4.64%-21.04%).

Given that banks set their lowest borrowing rates for vehicle loans independently, it is crucial to shop about and compare offers to discover the most affordable ones. Get pre-approvals from multiple lenders with different interest rates and payment schedules to find the best loan conditions.

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