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If you’re in the market for a car, you’re likely in the market for a car loan, but how can you be sure you are being offered financing at the lowest rates in today’s auto market?
Perhaps the most important number to look at is the annual percentage rate or APR you’re offered on the loan. This is essentially how much interest you will pay for each year that you have your car loan, over and above the sticker price of the car.
So, what is a good APR for a car loan these days? Before we get into that, let’s take a closer look at how the APR of your loan is determined and how it affects what you end up paying.
Your APR is not the same as the interest rate on your loan. Instead, it includes both the interest rate applied to the price you negotiate for your car plus markups to include financing and other fees that are rolled into the final price you pay for your vehicle.
In other words, the interest rate does not include the fees charged for the loan—but the APR does—making it a measure that encompasses the total cost of borrowing money each year.
That means there is often a significant difference between the interest rate and APR charged on your loan, and usually there is not a whole lot you can do about this.
That’s why it’s important to understand how the APR and the length of your loan work together to determine how much you pay for your car in total over time.
Dealers will often offer you longer loans with a smaller monthly payment for a similar or slightly higher APR. This can be tempting because you will have more money in your pocket every month. What you won’t see is the extra interest you end up paying because you take a year or two longer to pay off your loan.
Instead, it’s important to negotiate the lowest APR you can with the highest monthly payment you can afford. Having enough cash on hand to make a significant down payment (ideally up to 20% of the value of your car) will also help.
Be wary of lenders who offer loans with suspiciously good APRs. In many cases, these loans will have hidden fees such as mandatory balloon payments later in the loan’s life or even penalties to prevent you from paying off your loan sooner.
The APR you qualify for when you apply for a loan depends on several factors, but most importantly on your credit score.
Your credit score is based on how well you have handled credit and debt in the past. It’s based on credit records compiled by independent credit bureaus. If you’ve missed payments or run up high levels of debt in the past, these are likely to lower your credit score (which isn’t good, because ideally, you want a high number associated with your score).
You can check your credit score for free by contacting any of the three big credit bureaus, Experian, Equifax, and Transunion or through FICO, which develops the scoring systems the bureaus use. Some banks, credit unions, and card issuers also allow you to check your score.
The higher your credit score, the lower the APR you are likely to be offered. If you have a low credit score, however, you may have to accept higher interest loans with lower interest rates and a higher APR. You’ll also usually end up paying more in fees and financing costs. Borrowers with bad credit may find it impossible to qualify for credit from a reputable lender.
APR also varies according to the type of car you are buying. In fact, APRs are typically higher on used cars than on newer ones. This is because lenders consider used cars to be more of a risk to finance since they are worth much less than new models. This makes it relatively more expensive to recover costs if you should default on, or stop paying your loan.
When you head to your lender or car dealership—taking into account your credit rating and if you’re in the market for a used or new vehicle—what APR can you expect? First, it’s important to understand that APRs are based on real interest rates which vary over time according to conditions in the wider economy.
U.S. News & World Report publishes updated monthly APR figures that can help you find the average car loan interest rate by credit score for both new and used cars, as well as for refinanced loans. Here are the latest average auto loan interest rates for February 2024.
* Source: U.S. News and World Report, Average Auto Loan Rates in February 2024
The credit bureau Experian’s quarterly automotive finance market report is also a good source of updated average rates by credit score. Either way, it’s clear that when you’re in the market for a new or used vehicle, a better credit score is going to save you money over the life of your loan.
It’s wise to plan ahead for a car purchase by taking steps to improve your credit score in advance by ensuring you pay off bills on time, keeping credit card balances well below your borrowing limit, and keeping your debt payments below a third of your total monthly budget.
Start early. Over time, simply taking care of your bills responsibly could save you up to 10% on your auto loan APR!
If you’re not in a rush to buy a car, you’ll have the luxury of time to improve your credit score. But, what if you need a car rather quickly? Here are some ways you can find the best auto APRs you can when time is short:
Shop around: Talk to a wide range of lenders including banks, credit unions, online lenders, and auto financers. You'll soon get a sense of the typical APRs each offers for buyers in different credit score ranges.
Run the numbers: Use a car loan calculator to compare offers. Consider not only how much you are paying per month, but also how much you will pay over the life of the whole loan.
Go prepared: Get financing in place before you head to the dealership. You will know exactly how much you can afford to spend and how much you will pay each month so that you can focus on finding the right car for your needs.
Go local: It’s worth checking out credit unions in your area for car financing. As financial cooperatives, they can often offer better APRs than larger lenders and can tailor terms better to your needs. Some, including Baton Rouge Telco, can even help you buy cars directly.
Now that you know how your credit score and the type of vehicle you are purchasing can affect your APR and loan terms, it’s time to start planning your purchase.
At Baton Rouge Telco, we offer some of the most competitive loan rates around on both new and used vehicles and refinances. What’s more, we give our members APR discounts of up to 0.5%.
With us, you can expect:
Contact us today or click below to learn more about how Baton Rouge Telco can help get you moving for less.
Federally insured by NCUA. Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government – National Credit Union Administration (NCUA), a U.S. Government Agency.
