What is the average interest rate on an auto loan? Depends on credit rating


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  • The average interest rate for new cars in 2021 is 4.12% and 8.70% for used cars, according to Experian.
  • The credit rating, whether the car is new or used, and the length of the direct lender loan largely determine interest rates.
  • The average rate has fallen since the first quarter of 2020, from 5.22% for new vehicles and from 9.33%.
  • Compare up to 4 car loan offers with our partner myAutoLoan »

In the first quarter of 2021, the average automatic loan the rate for a new car was 4.12%, while the typical used car loan carried an interest rate of 8.70% according to The State of the Automotive Financing Market of Experian.

Interest rates are calculated taking into account many factors including your credit rating, the type of car you buy and where you live. Auto loans can be found at a dealership or by gathering pre-approvals from institutions you would like to work with, such as banks,

credit unions
, 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 ratings 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 a combination of credit types on your credit report. Businesses use credit scores to determine how risky they think it would be to lend 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 having a lower credit score makes the loan more expensive. In the above data, 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 payment. Using Bankrate’s car loan calculator, Insider calculated how much a borrower paying the average interest rate would pay for the same new car loan of $ 30,000 over 48 months:

With the interest rate being the only factor changed, a person with a credit score in the highest category will pay $ 656 per month, while a person with a score in the lowest category would pay $ 830 per month, or $ 174 more per month for the same car.

Average interest rates for used cars compared to new cars

Buying second-hand could mean higher interest rates

Buying a new car can be more expensive, on the whole, than buying a used one. However, the interest rates for new and used car loans are quite different regardless of your credit score. 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 spread 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 more than 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 ​​plus 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

The terms of the loan can have an 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 need to pay to borrow. The average 72-month auto loan 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 fear that borrowers benefiting from a long-term loan will not repay them in full. Above 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 is best to keep your auto loan 60 months or less, not only to save on interest, but also to prevent your loan from being worth more than your car, also known as being underwater. As we age, cars 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 borrowing rates for auto loans, so it’s important to compare offers 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.

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