What Are the Interest Rates for Car Loans?

What Are the Interest Rates for Car Loans?

Buying a vehicle is a significant purchase, usually costing tens of thousands of dollars. And unless you've saved the money to buy a car outright, you'll probably want to finance the transaction.

Auto loans – commonly ranging 24-84 months – get drivers behind the wheel right away and allow them to pay for a car over time. One element affecting the total cost of a car loan is the APR, which is the total interest and fees a borrower pays on the loan annually. 

The interest rate you're able to land depends on several factors, like credit score, promotions, and the lender. You can save hundreds or even thousands of dollars over the loan term if you can get a manufacturer's low interest rate. Conversely, a high interest rate adds substantially to the agreed-upon purchase price. 

Auto loans are an essential subject for car buyers who want to get the most for their money. Let's explore the ways you can not only secure one but get a good interest rate, too.

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What is an auto loan?

Auto loans allow drivers to borrow money to pay for a car over time. What sets auto loans apart from other types of loans – such as personal loans – is that they involve collateral, which, in this case, is the vehicle.

Because of this collateral, auto loans typically have lower interest rates than unsecured loans. Monthly payments for a car loan vary due to factors such as term length, APR, and vehicle sales price, so you'll want to take that into account when shopping around. 

Finding the best auto loan rates can be a hassle, but Shift makes it easy. Shift works with a network of trusted lenders to help you find the best rate, saving you time and money. Certified mechanics perform 150-point inspections on every vehicle, and you get a free Carfax report, so you know you're getting a quality car. These are just a couple of reasons doing business with Shift is the way to go.

Auto loan rates

Lenders compute auto loan interest rates using several factors. Knowing the APR is important when tabulating the final cost as you shop for a vehicle within your budget. 

Though lenders use your income and debts to determine the interest rate you qualify for, your credit score is the most important. Your credit score can mean a difference of 10 percent or more in the APR on your auto loan.

For new car purchases, car loan interest rates vary from 2.3 percent to 14.59 percent. These numbers reflect rates for the highest and lowest credit scores, respectively. Interest rates on used car loans are slightly higher, going from 3.66 percent to 20.58 percent.

The term of your auto loan also affects the interest rate. A longer-term loan over 60 months is considered a higher risk and carries additional interest to compensate. 

However, longer-term loans also lower your monthly payments, letting you get behind the wheel of a more expensive vehicle with additional features. You'll also have extra money around month to month for daily expenses with a lower monthly payment. 

With so many details to consider when buying a vehicle, why not go with a seller you can trust? Shift's experience and expertise makes for a one-stop shop when purchasing a used vehicle. On Shift's easy-to-use website, you can browse through hundreds of quality used cars and even make your purchase from the comfort of your home. 

Securing the best auto loan rates

When you're ready to buy, you'll want to shop around before committing to a specific financial institution. Each one has different ways of determining if you're approved and, if so, the rate of interest. Also, each lender has particular interest rates they set individually, so searching around could get you a better APR.

Although your credit report affects interest rates, it also influences other aspects of an auto loan. If you have excellent credit, you may qualify for a greater amount and be eligible for additional loan options. 

As you shop around for the lowest rate, it's beneficial to speak to lenders who offer pre-approval. This way, before filling out a loan application, you can determine if you qualify for specific rates. Another plus of pre-approval is it doesn't affect your credit score. 

As you look around for the best rates, it all comes down to lenders lowering their risk. You can benefit from an assortment of advantages if you convince a lender you're a safe candidate, including low rates and repayment options.

Even when you consider APR and interest rate, you should also take into account your monthly payment. No matter the interest rate you secure, extending your loan and lowering your monthly payments have benefits of their own. 

With the extra money you save every month, you'll have available funds for investments or unforeseen expenses. And a lower monthly payment lets you stretch your budget when you'd like to drive away in something more expensive. 

Buying a vehicle is a big step. What if you have second thoughts after you drive it home? Shift takes the worry out of the equation with their seven-day refund guarantee. If you’re not fully satisfied with your car after trying it out for a week, return it to Shift for a full refund, no questions asked. 

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Average car loan interest rate by credit score

Though a vehicle might seem to fit within your budget, it helps to know how much interest you'll owe on an auto loan first. 

The five categories of credit ratings have corresponding average APR on auto loans. Each type is defined by a range of values, so knowing which corresponds to you arms you with important information as you go through the application process.

The credit score grades used by lenders, from highest to lowest, are super-prime, prime, on-prime, subprime, and deep-subprime. Respectively, each category covers the spectrum of values from 781–850, 661–780, 601–660, 501–600, and 300–500.

Consequently, the average APR on a used car loan varies from 3.66 percent for a super-prime score to 20.58 percent for a deep-subprime score. The rest fall somewhere in between.

When you're looking for a quality used vehicle, where can you turn? You may be searching for anything from a Camaro to a Sprinter van, and you need good resources to locate a solid example. Shift makes it easy with their vast selection of vehicles on their easy-to-use website. Want to try before you buy? In certain service areas, a Shift concierge will drive to your door, so you can take a test drive before you sign the papers.

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Car loan interest rates in summary

Though buying a car is exciting, paying attention to the details can end up saving you money. 

Considerations like MSRP, maintenance cost, and gas mileage all play a part in what you'll pay throughout ownership. 

When you need a loan, doing your research ahead of time can secure you a better interest rate. Checking out different lenders and their specific rates and terms can minimize your payments over the loan term. 

Going with a longer-term loan helps you lower monthly payments, allowing you to drive the car you want and still have money left over for essential household expenses. 

Whether you're shopping for a sports car or looking for something on a budget, Shift has the vehicle for you. And because Shift offers best-in-industry service contracts, you know your vehicle is good to go mile after mile. 

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Author
Shift Editorial Team