What is a Good Interest Rate for a Car Loan?

Car key and money

If your Michigan driving experience is in need of an upgrade and you’re shopping for a new or used car, you may at some point wonder what is a good interest rate for a car loan. Depending on your credit score, what is considered to be a good interest rate will vary. Get help determining what is the average interest rate on a car loan as it relates to your specific credit score below, then explore some tips on practicing good money habits to get a better score and thus a better interest rate.

New and Used Car APR

Average Credit Score for New Car Annual Percentage Rate Average Credit Score for Used Car Annual Percentage Rate
781-850 3.17% 781-850 3.8%
661-780 4.03% 661-780 5.48%
601-660 6.79% 601-660 10.1%
501-600 10.98% 501-600 16.27%
300-500 13.76% 300-500 19.32%

Negotiate the Best Rate Possible

In order to secure the best interest rate possible for your credit score, you’ll need to plan ahead. Check your credit report and your credit score. The higher your credit score, the lower your interest rate will be. What is a good car loan rate? As the chart above shows, a good rate could fall anywhere between 3.17% and 13.76% for a new car and 3.8% to 19.32% for a used car, depending on your individual credit score. Using this knowledge, you’ll be better prepared to negotiate if you’re offered a higher interest rate than expected. 

What is the Average Interest Rate on a Car Loan?

A three-year car loan comes with an average interest rate of around 3% to 4.5%, but your offer may vary based on your credit score and where you’re applying for the loan. For this reason, it’s smart to shop around and compare car loans and interest rates before signing off on anything.

Raise Your Credit Score, Secure a Better Rate

If your credit score isn’t so great right now, it may be in your best interest to hold off on getting a new car if possible. Practicing positive financial habits can help raise your score over time, so you can secure the best interest rate possible on your auto loan and save money in the long-run. The good news is it’s never too late to start working on your score – here are some changes you can make to get started today:

  • Make payments on time and in full to avoid missed payments on your credit report. This includes credit card payments, phone bills, pre-existing loan payments, etc. As you begin to make timely payments, it will reflect positively on your credit report and can slowly raise your credit score.
  • Maintain a good credit utilization ratio. This has a big impact on your credit score and is calculated by adding up all of your credit card balances and dividing the amount by your total credit limit. Most lenders look for a ratio of 30% or less.
  • Become an authorized user on another account. If you have a family member or close friend who is very financially responsible, their good habits could help to raise your own credit score simply by naming you as an authorized user.
  • Limit new credit card or loan applications, as racking up too many hard credit inquiries can do serious damage to your credit score. 
  • Check your credit report for inaccuracies. If you find any, make sure to dispute them.

Consult Xpress Cash for Additional Help

The team at Xpress Cash is always here to provide the help you need. If you have any remaining questions about the average auto loan interest rate for your credit score, don’t hesitate to contact us online or visit us at one of our many Michigan locations to speak with an associate in person.