The national average auto loan interest rate in the United States is 5.27% on 60-month loans. For individual consumers, however, the rates vary depending on the credit rating, the length of the loan, the age of the financed car, and other factors relevant to the risk of the lender offering a loan. Typically, the annual percentage rate (APR) for auto loans ranges from 3% to 10%.
Average auto loan rates by credit score
Consumers with high credit scores, 760 or higher, are considered prime loan seekers and can be approved for interest rates as low as 3%, while those with lower scores are investments. riskier for lenders and typically pay higher interest rates, up to 20%. Scores below 580 indicate a consumer’s poor financial history, which can include late monthly payments, defaults, or bankruptcy.
Individuals in this “subprime” category may end up paying auto loan rates 5 or 10 times higher than those preferred consumers receive, especially for used cars or longer term loans. Subprime loans are sometimes offered to people buy a car without credit.
Consumers with excellent credit profiles typically pay interest rates below the 60-month average of 4.21%, while those with a credit profile in need of improvement should expect to pay higher rates. much higher rates. The median credit score of consumers who obtain auto loans is 711. Consumers in this range should expect to pay rates close to the average of 5.27%.
When combined with other factors relevant to an applicant’s car loan application, including liquid capital, cost of the car, and the overall ability to repay the loan amount, credit scores tell people lenders risk granting a loan to an applicant. Ranging from 300 to 850, FICO credit scores are calculated by evaluating credit payment history, outstanding debt, and how long an individual has maintained a line of credit.
Average interest rates by term
Most banks and credit unions offer payment plans ranging from 24 to 72 months, with shorter-term loans typically carrying lower interest rates. The typical term for auto loans is 63 months, with 72 and 84 month loans becoming more common. However, the higher APRs on longer-term auto loans can result in excessive interest charges that leave borrowers “upside down” – that is, they owe more on the auto loan than they do. car does not actually cost.
Here’s a closer look at average interest rates over different loan terms for those with the strongest credit.
While longer-term loans allow for a lower monthly payment, the additional months of accrued interest may ultimately outweigh the benefit of their lower short-term cost, especially for the consumer buying a car. older second hand that will depreciate rapidly in value.
72 and 84 month terms are generally only available for larger loan amounts or for brand new models.
For example, when paid over a 48 month period, a loan of $ 25,000 at an interest rate of 4.5% will result in monthly payments of $ 570 and a total cost of $ 27,364. When paid over 84 months in monthly installments of $ 348, that same loan at the same interest rate costs a total of $ 29,190, more than $ 1,800 more than 48 months. For higher interest rates, the difference between short and long term payments will be even greater.
Average auto loan rates by lender
Auto loan interest rates can vary widely depending on the type of institution lending money, and choosing the right institution can help get the lowest rates. The big banks are the main providers of auto loans. Credit unions, however, tend to offer customers the lowest APRs, and automakers offer attractive financing options for new cars.
Banks and credit unions
Most banks that offer auto loans offer similar rates as low as 3% to the most qualified customers. However, there is a large variation between banks in the highest allowed APR, with top rates ranging from 6% to 25%. Banks that offer higher rate loans will generally accept applicants with poorer credit, while more risk-averse lenders will not offer loans to applicants with scores below the mid-600.
The typical large bank has specific eligibility requirements for loans, including maximum mileage and age for cars, and a dollar minimum for loans.
Typically, credit unions provide loans at lower interest rates than banks, have more flexible payment schedules, and require lower minimum loans (or not at all, in some cases). However, credit unions tend to offer loans exclusively to their members, which is often limited to certain locations, professions or social associations.
Automakers like Ford, GM, and Honda also offer loan financing options on new cars purchased from their dealerships. This type of financing is growing in popularity among new car buyers and accounts for about half of all auto loans. Automakers provide base APRs as low as 0 or 0.9 percent to compete with traditional financiers like banks and credit unions, while encouraging customers to buy a new car from the dealership rather than a car from the dealership. opportunity from another seller. Low rates are reserved for the most qualified customers with excellent credit profiles, and not all loan seekers will be approved for credit from automakers.
How Average Interest Rates Vary for New and Used Vehicle Loans
Average interest rates on auto loans for used cars are generally higher than for loans on newer models. Higher rates for used cars reflect the higher risk of loaning money for an older and potentially less reliable vehicle. Many banks do not fund loans for used cars beyond a certain age, such as 8 or 10 years old, and loans for older models that are licensed often have much higher APRs. A leading bank offers its customers good credit interest rates as low as 2.99% for the purchase of a new model, but the minimum interest rate for the same loan on an older model from a private seller is 5.99%.
The typical auto loan drawn for a used car is significantly lower than that of a new model, with consumers borrowing an average of $ 20,446 for used cars and $ 32,480 for new ones. However, durations longer than 48 or 60 months are generally not allowed for older used car models, as the potential risk of car breakdown increases with age.
Historic auto loan rates
Auto loan rates are at historically low levels due to an overall low interest rate environment. Over the past decade, the average interest rate on a 48-month auto loan from a commercial bank has fallen by more than 40%. This is largely the result of the financial crisis of 2009, after which interest rates were lowered to encourage consumers to stimulate the economy by spending on items like cars rather than saving.
Auto finance company loans have historically been at lower rates than commercial bank loans. The large automakers have “captive finance” branches (eg Ford Finance, Chrysler Capital, GM Financial) that exclusively provide loans to consumers who buy the parent company’s cars; this allows automakers to offer lower prices because the purchase of the car, rather than the interest, is the main source of income for the manufacturer.
* The Federal Reserve stopped releasing data on auto finance company interest rates after 2011.
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