A good interest rate for a car loan varies based on credit profile, loan term, and current market conditions. Understanding typical rate ranges helps you determine if you’re getting a competitive offer and how to improve your rate.
Current car loan interest rate ranges (as of March 2025):
- Excellent credit (750+ score):
- New car: 4.2% – 5.7%
- Used car: 4.8% – 6.5%
- Good credit (700-749 score):
- New car: 5.5% – 7.2%
- Used car: 6.3% – 8.0%
- Fair credit (650-699 score):
- New car: 7.0% – 10.5%
- Used car: 9.0% – 13.0%
- Poor credit (600-649 score):
- New car: 10.0% – 14.5%
- Used car: 13.0% – 18.0%
- Very poor credit (below 600):
- New car: 14.0% – 20.0%
- Used car: 16.0% – 24.0%+
Factors that affect your car loan interest rate:
- Credit score and history: The most significant factor in determining your rate
- Loan term: Longer terms typically have higher rates (e.g., 60-month loans vs. 36-month loans)
- New vs. used vehicle: Used car loans typically carry rates 0.5-2.5% higher than new car loans
- Down payment amount: Larger down payments may qualify you for lower rates
- Debt-to-income ratio: Lower ratios demonstrate better ability to repay
- Vehicle age and mileage: Older vehicles with higher mileage typically have higher rates
- Lender type: Banks, credit unions, online lenders, and dealer financing all offer different rate structures
How to ensure you get a good interest rate:
- Check your credit reports at least 30 days before applying and dispute any errors
- Shop around with multiple lenders within a 14-day period (counts as a single inquiry for credit scoring)
- Get pre-approved before visiting the dealership to have negotiating leverage
- Consider credit unions, which often offer rates 1-2% lower than banks
- Opt for a shorter loan term if you can afford the higher monthly payments
- Make a larger down payment (aim for at least 20% to avoid being underwater on the loan)
- Avoid dealer financing without comparing it to outside options first
Red flags that indicate a bad car loan deal:
- Focusing on monthly payment instead of total cost and interest rate
- Prepayment penalties that charge you for paying off the loan early
- Loan terms exceeding 60 months for used cars or 72 months for new cars
- Add-ons and fees rolled into the loan amount that inflate your borrowing costs
- Interest rates more than 3-4% above the average rates for your credit profile
Impact of interest rates on your car loan:
On a $25,000 loan for 60 months:
- 5% rate: $472/month, total interest paid = $3,306
- 8% rate: $507/month, total interest paid = $5,397
- 12% rate: $556/month, total interest paid = $8,351
When evaluating offers, consider both the monthly payment and the total interest paid over the life of the loan. Even a 2-3% difference in interest rate can mean thousands of dollars in additional costs, making it well worth the effort to secure the best rate possible.