Updated November 26, 2018

Average Car Loan Interest Rate May Surprise You

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Good credit can get you a favorable car loan interest rate around 4.3 - 4.5%. Bad credit can leave you with interest rates as high as 19%. The difference is that drastic.

Read this study to learn more surprising facts about car loans.

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The Truth About Car Loan Interest Rates

  • What is the average car loan interest rate?
    Car buyers today pay an average interest rate of 4.36% to 4.42%. The actual rate depends on several factors. Your credit score, term, and the type/age of the car being financed help determine your rate.

    The national average for interest rates on a new car is 4.42% for a 48-month loan and 4.36% for 60 months. Just as rates vary by term, your credit score and the type/age of the car also has an impact.

  • What is the average car loan interest rate for a 48-month loan?
    Buying a new car with a 48-month loan costs an average 4.42%. Borrowers with excellent credit are rewarded with an average rate of 3.679%. Below a 720 credit score, your rate increases to an average of 5.052%. This is a difference of $20 a month, but almost $900 in total interest.

  • What is the average car loan interest rate for a 60-month loan?
    The average loan interest rate on a 60-month new car loan is 4.36%. However, borrowers with excellent credit pay a lower rate of around 3.724%. If you have a score lower than 720, you'll pay an average of 5.098%. The lower credit score can cost you $18 per month and $1,100 in total interest.

  • What is the average car loan interest rate for a 72-month loan?
    A 72-month loan offers an average 4.99% for a new car. Borrowers with excellent credit often don't see a difference between the 60-month and 72-month rate. However, riskier borrowers see at least a 0.5% increase in rate jumping from a 60- to 72-month term.

  • What is the average new car loan interest rate?
    The average new car loan interest rate is 3.05% for borrowers with credit scores over 780. Borrowers with credit scores between 661 and 780 pay an average 3.96%. Borrowers with credit lower than 660 pay 6.92 - 14.43%.

  • What is the average used car loan interest rate?
    The borrower with a credit score over 780 pays an average of 3.68% for a used car loan. Borrowers with a credit score between 661 and 780 don't fare as well. They pay an average 5.42%. Borrowers with a score lower than 660 pay between even more at 10.06 - 19.73% for a used car loan.

  • What is the average car loan rate for borrowers with good credit?
    Good credit borrowers are those with a score higher than 660. They pay an average rate of 3.96% for new cars and 5.42% for used cars. Having excellent credit can save borrowers 0.91% on a new car and 1.74% on used cars.

  • What is the average car loan rate for borrowers with bad credit?
    Borrowers with bad credit can pay between 6.92% and 14.43% for a new car. For a used car, they pay between 10.06% and 19.73%.

Buyers with bad credit can get help financing their vehicle. Check out Auto Credit Express to find out how much you could qualify to borrow.

Financing a Car

  • How many new car buyers use financing?
    86% of people buying new cars use financing. This percentage has remained stable since last year.

  • How many used car buyers use financing?
    Only 53% of people buying used cars use financing, though. This is 2% less than last year.

  • How many new cars are leased?
    Today, 30.83% of new cars are leased. This is just about a 0.6% decrease from last year.

  • What is the average credit score for a new car buyer?
    The average credit score for new car buyers is 711, while the average credit score for buyers who lease the car is 722. Overall, new car buyers have a 714 credit score. This is considered a "good" credit score.

  • What is the average credit score for a used car buyer?
    Used car buyers have an average credit score of 652. This is likely because used cars are easier to purchase, whether the buyer pays cash or applies for financing. The smaller loan amount poses a lower risk for the lender. This makes it an easier loan to qualify for with a lower credit score.

  • What is the average loan amount for a new car?
    The average loan for a new car is $30,234. Buyers with credit scores between 661 and 780 had the highest loan average loan amount at $31,964.

  • What is the average loan amount for a used car?
    The average loan amount for a used car is $19,179, or $11,000 less than the average new car. Borrowers with "good" credit once again have the highest average loan amount at $20,847.

  • What is the average car payment on a new car?
    Today's average car payment equals $504 for both bought and leased vehicles. Not surprisingly, borrowers with lower credit scores (601-660) have the highest average payment at $524.

  • What is the average car payment on a used car?
    The average used car payment is $365. Borrowers with excellent and good credit scores share the same average payment of $359. Borrowers with a lower score (601-660) pay an average of $379 per month.

Buying a Car

  • How much should you spend on a car?
    There are many opinions on this. Frugal people say you shouldn't spend more than 10% of your annual income on a car. If you make $60,000, that means you should only buy a $6,000 car. That's not very realistic.

    Instead, you'll want to focus on your monthly car payment. You'll want to keep it within 10% of your monthly take-home pay. Once you know what you can afford monthly, you can figure out how much car you can buy.

  • How much should your monthly car payment be?
    If you use the 10% rule, you'll want your car payment to be less than 10% of your monthly take-home pay. If you bring home $5,000, you shouldn't pay more than $500 a month for a car. This means buying a $25,000 car, if you don't have a down payment. With a 20% down payment, you could afford a $30,000 car with a 60-month loan.

  • How much should you put down on a car?
    Just like a house, 20% is the magic number. However, 12% has been the average in recent years. Borrowers simply can't afford the higher 20% down payment. If you can swing it, though, it offsets the initial depreciation your car will experience within the first year. Most new cars depreciate 20.3% during the first 12 months.

  • How much should you put down on a car with a trade-in?
    If you have a trade-in and accept the amount the dealer provides, you can decrease your cash down payment. Making up the difference between the 20% down payment and your trade-in can help you stay ahead of the depreciation.

  • How much can you spend on a car for $400 a month?
    Without any down payment, you could afford a $20,000 car for $400 a month on a 60-month loan. If you prefer a 48-month loan, your buying power decreases to $16,500.

    Making a 20% down payment would give you more buying power. You could afford a $20,000 car on a 48-month loan and $24,000 car on a 60-month loan.

  • How much can you spend on a car for $600 a month?
    A $600 a month payment allows you to buy a $30,000 car with a 60-month loan and a $24,000 car on a 48-month loan.

Bottom Line

Cars are expensive, but they are necessary in most cases. Buy a car that is safe, but doesn't break your budget. Keep your payment within 10% of your monthly net income. If you need a loan, shop around for it. If you have an "average" credit score, you'll likely find a large variance in the rates offered. Find the one that gives you the perfect combination of a low payment and the least amount of interest.

Sources and References:

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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