Finding the Best Auto Loan Interest Rate: A Comprehensive Guide
When shopping for a new car, many factors come into play—safety features, fuel efficiency, design, and comfort. However, one of the most crucial considerations is securing a good interest rate on an auto loan. The interest rate you receive can significantly impact your overall borrowing costs and monthly payments. At O1ne Mortgage, we understand the importance of finding the best rate, and we’re here to help you navigate this process. Call us at 213-732-3074 for any mortgage service needs.
What Is a Good Auto Loan Interest Rate?
A “good” interest rate on a car loan can vary depending on several factors, including your credit history, financial situation, and the vehicle’s price tag. The best rate for one borrower may be higher than the rate offered to someone with better credit and other qualifying factors. Here are some key elements that influence your auto loan interest rate:
- Your credit score
- Your credit history
- Your income
- Your debts
- The size of the loan
- The term of the loan (e.g., 48 or 60 months)
- The amount of the down payment
- The type of vehicle you’re buying
- The age of the car (new or used)
The interest rate on an auto loan matters because it affects how much money you’ll end up borrowing and your monthly payments. When shopping for a car loan, it’s essential to find out the APR (annual percentage rate), which reflects the full cost of borrowing money, including interest and fees.
According to Experian’s latest State of the Automotive Finance Market Report, the average interest rate for a new vehicle rose to 6.58% in the first quarter (Q1) of 2023, up from 4.10% during the same period in 2022. Meanwhile, the average interest rate for a used vehicle jumped to 11.17% during Q1 2023, up from 8.67% a year earlier.
Average Auto Loan Interest Rate by Credit Score Range
Credit scores play a significant role in determining your auto loan interest rate. The following table shows average interest rates for new and used vehicles across five credit score categories, using the VantageScore® scoring model (with 850 being the highest and 300 being the lowest):
| Credit Score Range | Average Interest Rate, New Cars | Average Interest Rate, Used Cars |
|---|---|---|
| 781-850 | 5.18% | 6.79% |
| 661-780 | 6.40% | 8.75% |
| 601-660 | 8.86% | 13.28% |
| 501-600 | 11.53% | 18.55% |
| 300-500 | 14.08% | 21.32% |
How Do You Find a Good Rate on an Auto Loan?
No matter your credit score, you want to secure the best rate possible for a car loan. Here are six tips to help you achieve that:
Shop Around
Compare rates among at least three to five lenders, such as banks, credit unions, and automakers. This will give you a better idea of the rates available and help you find the most competitive offer.
Make a Bigger Down Payment
Putting down a larger down payment can lead to a lower interest rate. This reduces the amount you need to borrow and shows lenders that you’re a lower-risk borrower.
Buy a New Car Instead of a Used Car
Experian data shows that average rates for new cars are lower than those for used cars. If you’re deciding between a new and used vehicle, consider the potential savings on interest.
Pick a Shorter Payoff Period
Opting for a shorter loan term, such as 48 months instead of 60 months, can result in a lower interest rate. However, keep in mind that this will lead to higher monthly payments.
Negotiate with a Lender for a Lower APR
While you may be limited in the interest rates you’re offered, some lenders may have flexibility. Don’t be afraid to negotiate and see if you can secure a better rate.
Boost Your Credit Score
If you have time, work on improving your credit score by reducing your debt and catching up on past-due payments. A higher credit score can increase your chances of getting a lower interest rate. Keep in mind that it can take 30 to 60 days to see a positive change in your credit score.
It’s also worth noting that shopping for a car loan within a short period, such as 14 days, won’t significantly impact your credit score. Multiple credit inquiries within a short period are treated as a single inquiry by credit scoring models, minimizing the impact on your score.
How to Get a Better Rate on an Auto Loan
Comparing rates among several lenders is one of the simplest ways to secure the best interest rate for a car loan. Additionally, making a larger down payment and choosing a shorter loan term can help you get a better rate.
Don’t overlook the importance of your credit score in this process. Improving your credit score can increase your chances of getting a favorable interest rate. At O1ne Mortgage, we are committed to helping you find the best auto loan rates. For personalized assistance and expert advice, call us at 213-732-3074.
By following these tips and working with a trusted lender like O1ne Mortgage, you can secure a competitive interest rate on your auto loan and save money in the long run. Contact us today to learn more about our mortgage services and how we can help you achieve your financial goals.
