What Is the Average APR for a Car Loan in 2024?
When shopping for a car, one of the most important factors to consider is the Annual Percentage Rate (APR) on your car loan. The APR represents the total cost of borrowing, including both the interest rate and any fees, over the life of the loan. Understanding the average APR for a car loan can help you make informed decisions, whether you're buying a new or used vehicle, or refinancing an existing loan.
Current Average APR for Car Loans
As of 2024, the average APR for a car loan can vary based on several factors, including your credit score, the term of the loan, and whether you're buying a new or used car. According to recent reports, the average APR for a new car loan ranges from 5.5% to 8%, while the average APR for a used car loan typically falls between 7.5% and 11%.
However, these rates can vary significantly depending on your creditworthiness and the lender you choose. For example:
Excellent credit (750+): You may qualify for rates as low as 3% for new cars and 5% for used cars.
Good credit (700-749): Rates typically range between 5% and 7% for new cars and 6% to 8% for used cars.
Fair credit (650-699): Expect APRs between 8% and 10% for new cars and 10% to 12% for used cars.
Poor credit (below 650): APRs can exceed 14% for new cars and 15% or higher for used cars.
Factors That Influence Your Car Loan APR
Several factors determine the APR you're offered when applying for a car loan. Here’s a breakdown of the key components:
Credit Score: Your credit score is the most significant factor that affects your APR. Lenders view borrowers with higher scores as less risky, meaning they’ll offer lower rates to those with excellent credit. Conversely, borrowers with lower credit scores will face higher APRs due to the perceived risk.
Loan Term: The length of your loan also impacts your APR. Generally, shorter-term loans (36 to 48 months) come with lower APRs than longer-term loans (60 to 84 months). While longer terms can make monthly payments more manageable, the higher APRs may increase the total cost of borrowing.
New vs. Used Car: New car loans typically come with lower APRs than used car loans. This is because used cars tend to depreciate faster, making them riskier for lenders. As a result, APRs for used cars are often 1% to 3% higher than those for new cars.
Down Payment: Making a substantial down payment can help lower your APR. A larger down payment reduces the lender’s risk, as you're financing a smaller portion of the vehicle’s value, which can lead to a better interest rate.
Lender Type: Different lenders offer different APRs. Dealerships, credit unions, banks, and online lenders all compete for your business, so it’s essential to shop around. Credit unions, in particular, often offer lower rates compared to traditional banks or dealership financing.
How to Get the Best APR for a Car Loan
Improve Your Credit Score: If your credit score is on the lower side, consider improving it before applying for a car loan. Paying down debt, avoiding late payments, and reducing credit card balances can all boost your score, leading to lower APR offers.
Shop Around: Don’t settle for the first offer you receive. Compare loan offers from multiple sources, including banks, credit unions, and online lenders, to find the best APR for your situation.
Consider Preapproval: Getting preapproved for a car loan can give you an advantage when negotiating with dealerships. Preapproval allows you to compare interest rates more easily and gives you a clearer idea of what you can afford.
Negotiate: Don’t be afraid to negotiate your loan terms. Sometimes, dealerships or lenders may be willing to offer better rates or reduce fees if you’re a qualified buyer.
Conclusion
In 2024, the average APR for a car loan varies depending on several factors, most notably your credit score, the type of car you’re buying, and the loan term. On average, APRs range from 5.5% to 8% for new cars and 7.5% to 11% for used cars. However, borrowers with excellent credit may qualify for lower rates, while those with poor credit may face higher APRs.
By understanding the factors that influence your car loan’s APR and shopping around for the best rates, you can ensure that you’re getting the best possible deal on your next vehicle purchase.
