What is the average interest rate for auto loans? Depends on credit score
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- The average interest rate for new cars in 2020 was 4.31% and 8.43% for used cars, according to Experian.
- The credit rating, whether the car is new or used, and the length of the loan largely determine interest rates.
- The average rate fell in 2020, from 5.15% for new and 9.69% for used in the second quarter.
- Compare up to 4 auto loan offers with our partner myAutoLoan Â»
In the second quarter of 2020, the average auto loan rate for a new car was 4.31%, while the typical used car loan carried an interest rate of 8.43% according to Experian State of the Automotive Financing Market.
Interest rates are calculated taking into account many factors including your credit score, the type of car you are buying and where you live. Auto loans can be found through a dealership or by collecting pre-approvals from institutions you want to work with, such as banks,
, or independent lenders.
Experian data shows that the two biggest factors in your auto loan interest rate are your credit score and whether you are buying a new or used car.
Here are the average interest rates for each type of credit score for new and used car purchases, according to Experian
Average interest rates per credit score
The higher your credit score, the less it will cost you to borrow
Credit scores are a digital representation of your credit history. It’s like a score for your borrowing history ranging from 300 to 850, and includes your borrowing, requests, repayment, and combination of credit types on your credit report. Businesses use credit scores to determine how risky they think lending would be to you, and therefore, how much they want to charge you for that privilege.
Auto loans are no exception to the long-standing rule that a lower credit rating makes borrowing more expensive. In the data above, the cheapest borrowing rates went to people with the best credit scores. Meanwhile, those with the lowest credit scores paid around 10 percentage points more to borrow than those with the highest scores.
The interest rate also has a big effect on the monthly payments. Using Bankrate’s auto loan calculator, Insider calculated how much a borrower paying the average interest rate would pay for the same $ 30,000 auto loan over 48 months:
With the interest rate being the only factor changed, a person with a credit score in the highest category will pay $ 659 per month, while a person with a rating in the lowest category will pay $ 823 per month, or $ 164 more per month for the same car.
Average interest rates for used cars compared to new cars
The used purchase could mean higher interest rates
Buying a new car can be more expensive, overall, than buying a used car. However, the interest rates for new and used car loans are quite different regardless of your credit rating. Based on data from Experian, Insider calculated the difference between new and used interest rates. On average, financing a used car costs about four percentage points more than new financing.
The gap between the cost of financing a used car narrows as credit scores increase, but even for the best credit scores, a used car will cost over 1% more to finance than it does. ‘a new car.
Used cars are more expensive to finance because they present a higher risk. Used cars often have lower values ââplus a greater chance that they could be totaled in an accident and the finance company could lose money. This risk is reflected in the form of higher interest rates, regardless of the borrower’s credit rating.
Average interest rates by loan term
Loans less than 60 months have lower interest rates
Loan terms can have some effect on your interest rate. In general, the longer you pay, the higher your interest rate.
After 60 months, your loan is considered higher risk and there are even bigger spikes in the amount you will pay to borrow. The average 72-month auto loan interest rate is almost 0.3% higher than the typical 36-month loan interest rate. This is because there is a correlation between longer loan terms and non-payment – lenders worry that borrowers with long-term loans will ultimately pay them back. During the 60 month mark, interest rates go up with each year added to the loan.
S&P Global data for new car purchases with a loan of $ 25,000 shows how much the average interest rate is changing:
It’s best to keep your auto loan 60 months or less, not only to save on interest, but also to keep your loan from being worth more than your car, also known as being under water. As cars age, they lose value. This is not only a risk for you, but also for your lender, and this risk is reflected in your interest rate.
Average interest rates per lender
The lender you use makes the difference
When you start shopping for auto loans, you will find that the lender you choose makes a difference. Here are the starting interest rates from several different lenders for new and used cars.
Banks independently set their minimum auto loan rates, so it’s important to shop around and compare offers to see what works best for you. Get pre-approvals from several different lenders and compare APRs and monthly payments to find the deal that’s right for you.