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It’s important to factor in your interest rate when budgeting to purchase a new vehicle. According to Experian’s State of the Automotive Finance Market report, the average auto loan interest rate for new cars in the first quarter of 2025 was 6.80 percent, while the average used car loan interest rate was 11.54 percent.
Typically, a lower credit score will lead to a higher annual percentage rate (APR), and a higher APR will increase the cost of your car by hundreds of dollars. You don’t need a perfect credit score to get a reasonable rate, though. You can save on your loan by shopping around for the best auto loan rates and improving your credit score.
Borrowers with the highest scores receive the lowest rates, but it’s possible to get a good rate without a perfect score. Lenders consider several factors when determining interest rates, including your credit score. By improving your score for a car loan, you can save money by qualifying you for a better rate. There isn’t a significant difference between a superprime borrower and a prime borrower, but rates increase significantly if you fall outside of the prime range.
Interest is the price you pay each month to borrow money. The higher your interest rate, the more you pay overall for your loan. Even reducing your interest rate by a fraction of a percentage point can save you hundreds of dollars.
For example, we calculated the cost of a car loan with a $30,000 balance and a term of 60 months. A borrower with excellent credit will pay around $160 less per month than a borrower with poor credit — and may end up saving over $9,500 in interest over the life of the loan.
While your credit score plays a large part in determining your interest rate, there are other factors to consider.
The two most common credit scores used when underwriting car loans are the FICO score and VantageScore, although some lenders may use an auto industry-specific scoring system instead. These scores consider risk factors associated with your likelihood of repaying an auto loan. Higher scores generally get lower rates.
Lenders will also consider your income and debt-to-income (DTI) ratio. DTI measures the percentage of your income going toward paying off existing debts. A high DTI could indicate you’re not in a position to take on a car loan. Similarly, your income needs to be high enough to manage your car payments in addition to your current bills and expenses.
It can be tempting to go with dealer financing since it can be the most convenient option, but you have a choice of a bank or dealership loan. Getting financing from the dealership often means less paperwork overall. However, you may find more favorable rates from a bank, credit union or online lender.
Regardless of which option you choose, different lenders have different credit underwriting criteria. All will consider your credit score, income and debt-to-income ratio, but lenders differ on what they find acceptable. Some may also consider your education or professional experience.
Loan-to-value (LTV) ratio compares the amount of your loan to the value of the car you are financing. Some lenders offer LTVs of over 100 percent, meaning they will loan you more than the cost of the vehicle. You can use this extra loan money to cover taxes or other expenses related to buying a car, but keep in mind that whatever you borrow will need to be paid back with interest.
Taking out a loan with a high LTV poses numerous risks, including significantly increasing your chances of becoming upside-down on your car loan. It’s also an expensive way to borrow money that starts your new auto loan with negative equity. The best way to protect your finances is to make a good down payment and finance only what you absolutely need.
Broader market factors also play a role in setting the industry’s minimum rates. When the federal funds rate is high, as dictated by the Federal Reserve, it costs lenders more to borrow money. In turn, you are likely to face higher interest rates.
Following the second fed cut of 2025 in October, the current fed funds target rate is 3.75 percent to 4 percent, which may lead to changes in the last few months of the year, so keep an eye on the market. If you have strong credit, experts forecasted auto loan rates may see a decent decrease through 2025. However, those with poor credit are less likely to see relief. If that’s you, focus on comparing bad credit auto loan rates.
Lenders set restrictions on the vehicles they will finance and generally won’t finance vehicles over ten years old or with more than 100,000 miles. There can be other limits as well, generally based on criteria such as the brand, vehicle condition or value of the vehicle.
Your lender may also limit where you can purchase your vehicle. For instance, some independent dealerships cannot offer manufacturer financing. Similarly, companies like Carvana will only finance vehicles you purchase through their car-buying service.
There are a few ways to improve your chances of getting a reasonable interest rate, regardless of your credit score.
The lowest car loan rates are typically reserved for borrowers with near-perfect credit scores. While you are not guaranteed to get the rate corresponding to your credit bracket, it is great for comparison purposes when shopping around for a good deal.
To get started, prequalify for an auto loan with lenders online and offline to see the rates you may be eligible for.
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Table of contents
What is a simple interest auto loan, and how does it work?
What is the average credit score for personal loans?
Auto loan rate forecast for 2025: Lender competition means good news for good credit borrowers
How to get a car loan with bad credit
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range, can also impact how and where products appear on this site. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
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