What Is a Good Auto Loan APR?
APR is the annual percentage rate, which is a measure of how much you’ll pay in interest on your loan. For auto loans, APR includes the interest rate you pay plus any fees associated with taking it out.
These rates vary and are based on several factors. In general, if you plan on buying a new car a good APR would be anywhere from 2,40% to about 14,76%. Auto loan APR if you were to choose a used car can be quite high from 3.71% to 20.99%.
Keep in mind that these auto loan APR rates are just a general estimate and the actual percentage will depend on how good your credit score is. Lower scores will trigger higher rates for borrowers as a result of lower creditworthiness.
What Is APR?
You can look at APR as a measure of the cost to borrow money, which includes more than just the interest rate. This rate not only takes into account how much you pay each month but also what the loan payments will be over time. Additionally, it also helps you know how much of your initial loan balance will be paid off after completing your loan term.
The annual percentage rate is the rate you’ll have to pay over the course of a year. It’s calculated by dividing the total interest and other fees by the amount borrowed and multiplying that result by 100. For example, if a car loan has an APR of 7%, it means that for every $100 borrowed on your auto loan, you will pay back $107 in interest over 12 months (assuming you make payments consistently). The lower your APR is as compared to other lenders’ offers, the better deal you’re getting.
How Is APR Determined?
In order to determine your APR, you must consider the following:
- Amount financed. The amount that you are borrowing from the lender. This is also called the principal amount of your loan.
- Time period. The number of years it will take you to pay off the loan in full, assuming no additional interest charges are added
So, let’s say you get a car loan from the bank for $25,000. The APR for that loan could be 5 percent or 10 percent (or even more), depending on how much creditworthiness you have and what kind of vehicle it is for. If you are buying a new car with good credit scores and can afford to make payments on time every month, then your interest rate will likely be lower than if there were problems with your credit score or if you were buying an older used car from a private seller who wasn’t willing to budge on his asking price when negotiating terms of sale with him directly.
What Factors Influence APR?
There are two main factors that influence your auto loan APR:
- Credit score – The biggest factor in determining whether are you eligible to get a low APR auto loan is your credit score. We already talked about this but it’s essential for you to don’t forget that the better your credit score is, the lower your interest rate will be. As mentioned above, this is because lenders are more likely to trust someone who has a good track record of paying back their debts on time. Having an excellent score can even give you an opportunity to qualify for a 0 APR auto loan.
- Credit type and length of the loan – Another thing that can influence APR is whether you’re applying for a new or used car loan or refinancing an existing one. Typically, new cars are financed over a longer period of time than used ones; therefore, they have lower APRs.
Average Auto Loan Rate Based on Your Credit Score and Vehicle
The average auto loan APR for new cars is 4.07% and 8.67% for used cars. But don’t forget that these average rates are based on your credit score and vehicle, so if you were to go into a dealership for a new car here are some average scores based on your credit:
- If you have a good credit score (around 700 or higher), you could get an auto loan with an average APR of 4.9%.
- If you have a fair credit score (around 650-699), the average APR for an auto loan would be 5.2% or more.
- If you have poor/bad credit, the average APR for an auto loan would be 5.6% or more.
New auto loan rate
New auto loan rates are typically lower than those on used vehicles. You might think this makes sense since new cars depreciate in value quickly and lose 20-30% of it in the first three years. However, there’s another reason for this: these loans are longer than if you were to go and buy a used car.
As we already mentioned the rates can be between 2,40% and 14,76%. Be sure to speak with a lender so you are getting the lowest auto loan APR possible.
Used auto loan rate
Used car loan rates are higher than new auto loan rates because the lender is less certain that they’ll get their money back. The riskier the loan, the higher the interest rate. That means a used car can cost you more over time.
If you’re buying a used car and don’t have much credit history or if your credit is not great, it will be difficult to get approved for an auto loan. You may have to go through subprime lenders who specialize in loans for people with poor credit histories or bad financial situations.
The rates if you choose to go this route can be from 3.71% to 20.99%.
How Can You Lower Your APR Rate?
- Find the best auto loan APR rate. There isn’t one easy answer for who has access to the best interest rates, but your credit score is a good place to start. Generally speaking, people with higher credit scores can find lower APR auto loans than those with lower scores.
- Shop around for a loan. The more lenders you talk with, the better your chances of finding one who will offer you an interest rate low enough for you to stay within your budget and still afford other expenses on top of the monthly car payment.
- Get preapproved for an auto loan. Pre-approval indicates that the lender has already reviewed your finances and decided that they’re willing to provide financing at a certain interest rate.
There are many factors to consider when you’re going through the process of buying a car, but knowing the APR rate before signing on the dotted line should be at the top of your list.
Knowing how your credit score affects the rate that you pay on an auto loan can help you make more informed decisions about borrowing money and even secure an auto loan with a low APR.
It’s also important to compare different lenders and loan options so that you can get the best deal for your needs. Remember that the APR is just one aspect of this process. Take into account things like terms and rates, down payment amounts, income levels, and more.