What is a Good APR For a Car Loan?
Summary:
A “good” APR for a car varies depending on multiple factors, such as your credit, income, whether the car is new or used, the loan term, and your lender. Determining what a “good” APR is a moving target because it depends on how the market as a whole is behaving. This article provides a deep dive into what is currently considered a good APR.
When you’re shopping around for an auto loan, one of the most important factors to look at is the APR, which is short for annual percentage rate. APR isn’t quite the same thing as the loan interest rate. Instead, it’s the total cost for the loan, including both the interest rate and fees.
However, finding a good APR can be easier said than done, especially since what actually qualifies as a good rate can be somewhat subjective. We’ll help you understand what makes a good rate on a car loan, which factors determine your APR, and how you can find a low APR on your vehicle loan.
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What is a good APR for a car loan?
When you’re shopping for a new (or used) car, one question you’re likely to ask is, “What is a good APR for a vehicle loan?” Unfortunately, there’s no easy answer to this question.
The rates available to you depend on several factors, and what’s considered a “good” rate may change with your financial situation, the car you buy, and even the economy.
In today’s low rate environment, anything under 5% would likely be considered a good rate. But remember, what’s considered a good rate will be different for everyone depending on their situation. For example, because auto loan interest rates tend to be higher when financing a used car, you might consider anything under 7 to 8% to be a good rate. O
n the other hand, someone buying a new car might only think something under 4% is good. Read our detailed guide on what an auto loan is.
Your perception of a good rate will also be different depending on your financial situation. Someone with a solid credit history and excellent credit is likely to have access to the best rates on the market, and in that case, the 5% figure we mentioned earlier might be a good rule of thumb.
But for someone with a rockier financial history, a rate under 10% or even under 15% might be good.
What’s the difference between interest and APR?
Though APR and interest sound very similar, there is a key difference between the two. While both APR and interest represent the cost of borrowing money to purchase a car, APR includes the fees and additional costs associated with lending that money. Therefore, an APR will give you the most accurate estimation of future car loan payments.
Why APR Matters More Than You Think
Your APR determines how much you actually pay for your car over time—not just the sticker price. Even a small change in APR can translate into hundreds or thousands of dollars in savings over the life of the loan.
- Higher APR = Higher monthly payments and more total interest.
- Lower APR = Lower cost and a faster path to paying off your vehicle.
- Your credit score is usually the biggest factor influencing your APR.
Friendly Tip: If you can reduce your APR by even 1–2%, you can significantly cut the total cost of your loan—especially on longer terms like 60 or 72 months.
What is the average APR for a car loan?
Ultimately, what a “good” APR means is subjective. Looking at the average rates on different types of loans and for different borrowers can give you an idea of how your rate compares. The tables below are based on information from Experian’s State of the Automotive Finance Market report from Q4 of 2021. The first table shows the average rate by credit score for new car auto loans, while the second table shows the average rate by credit score for used auto loans.
When you review the tables, you’ll notice that rates are generally higher for used cars than for new ones. The discrepancy between the two grows wider the lower the borrower’s credit score. Someone with bad credit who is buying a used car could pay an APR of nearly 20%. These rates are just estimates and can change at any moment depending on the market.
How your lender affects your APR
Your credit is probably going to be the biggest factor that determines your auto loan APR. However, data suggests that rates also vary depending on the type of financial institution you choose. A study from the Consumer Finance Protection Bureau found that traditional banks and credit unions tend to have the lowest vehicle loan rates, while nontraditional lenders and dealers tend to have the highest rates. However, that doesn’t mean the best available rate for you is with a bank or credit union. Some of the lenders with the lowest available rates are not banks or credit unions.
With this in mind, it’s important to note that the difference in the average auto loan rates for these lenders most likely has more to do with the types of borrowers they have than anything else. The same study found that banks and credit unions tend to work with lower-risk borrowers, while dealers and nontraditional financial institutions tend to work with higher-risk borrowers.
The bottom line is you should compare multiple lenders before you choose a lender. You may be surprised by which lender offers the best rates and terms.
Pro Tip
To find the best rates for your auto loan, consider rate shopping with multiple types of lenders, as well as both local and national lenders.
What factors affect the APR for car loans?
As you can see, rates on car loans can vary drastically, often ranging from just a few percent for some borrowers to well over 10% for others. To give you a better understanding of why that is, let’s talk about a few of the different variables that may affect your loan’s APR:
- Credit history. Your credit report and score are two of the most important factors when it comes to your car loan’s APR. In general, someone with an excellent score and a clean credit history will have access to the best rates. On the other hand, someone with a low credit score and missed payments on their record is likely to have a high APR on their loan.
- New vs. used car. You may also pay a different APR depending on whether you buy new or used. Rates tend to be lower across the board for new cars than for used vehicles. Since lenders want to incentivize people to purchase new cars and new vehicles have higher resale values, many lenders may offer financing with a lower APR for new cars.
- Loan term. The longer it takes you to pay off your loan, the more risk there is for the lender. This is because the financial institution has more chances to lose money on the deal. As a result, lenders tend to offer better rates on shorter loan terms and higher rates on longer-term loans.
- Down payment. Lenders and dealers want to incentivize buyers to put down more money upfront, meaning a larger down payment may also get you a lower APR on your vehicle loan. Instead of a larger down payment, you could also trade in your current vehicle and use the proceeds of that trade-in as your money down.
What Counts as a “Good” APR for You?
A good APR isn’t one universal number—it depends on your credit profile, whether you’re buying new or used, and your loan term. Here’s how to think about it:
- Excellent credit: A good APR is typically very low, often below 5% for new cars.
- Good credit: Anything below 8% for new and 10%–12% for used is solid.
- Fair credit: A good APR is one meaningfully lower than credit card rates (usually under 15%).
- Poor credit: A good APR is simply one that beats other subprime offers and fits your budget without strain.
Good to Know: Loan term length affects APR. Shorter terms usually come with lower rates, while long terms (72–84 months) may increase your APR.
How does a good APR save you money?
Landing a good rate on your auto loan can save you money in two primary ways.
- Short term. A low APR can help you get lower monthly payments, which makes your car that much more affordable. Just how much of a difference can a good APR make? If you finance a car with a $20,000 loan over 60 months and get a 4% APR, you’ll pay about $368 per month. But that same loan with a 12% APR would cost you $445 per month, nearly $80 more every month.
- Long term. A good rate will also result in you spending less money on interest, potentially saving you thousands over the life of the loan. Using the same figures from above, a 4% rate on your loan would result in you paying roughly $2,100 of interest over the entire five-year term. For a 12% APR, you would pay about $6,693. Even if the $80 per month doesn’t seem like a big deal, it adds up to more than $4,500 over five years.
Typical APR Ranges for New, Used, and Refinance Auto Loans
APR varies based on credit score, lender, and the type of vehicle you’re financing. Here’s a quick comparison to help you understand what’s considered competitive for each category:
| Loan Type | Excellent Credit | Good Credit | Fair Credit | Poor Credit |
|---|---|---|---|---|
| New Car Loan | 5% or below | 6–8% | 10–14% | 18% or higher |
| Used Car Loan | 6% or below | 8–11% | 12–18% | 20% or higher |
| Refinance Loan | 4–7% | 7–10% | 12–16% | Depends on lender & existing loan |
Helpful Insight: APRs for used cars tend to be higher because older vehicles carry more risk for lenders. Refinancing may offer a lower APR if your credit or financial situation has improved.
How Lenders Set Auto Loan APRs
Every lender evaluates risk differently, but most consider similar factors when assigning your APR:
- Your credit score: Higher scores qualify for better rates.
- New vs. used vehicle: New cars typically have lower APRs due to lower risk.
- Down payment amount: More money down reduces the lender’s risk.
- Loan term: Shorter terms often come with lower rates.
- Income and debt-to-income ratio: Lenders want to see stable income and manageable debts.
For a deeper look at lender expectations, see our guide on how car loans work.
Pro Tip
Another way to save money on your vehicle loan, especially if it has a high APR, is to pay it off early. Just make sure that your loan doesn’t have a prepayment penalty!
How to find the best APR for a car loan
When you’re shopping for a vehicle, there are a few things you can do to find the best APR available to you.
First, it’s important to shop around with multiple lenders. Rather than taking out a loan with the first financial institution that preapproves you, spend some time rate shopping to find the best deal. Luckily, there are plenty of online tools available today to help you shop for rates from different lenders in one central location. Rather than limiting yourself to one type of lender, consider getting rate quotes from a variety.
Depending on your credit, the best way to get a better rate on a vehicle loan is simply to wait to buy until you’re able to improve your credit score. Having a good credit score can make the difference of as much as 10% (or more, depending on if it’s a new or used vehicle). While a car purchase can’t always wait if you have poor credit, you can plan ahead and spend 6 to 12 months improving your score to qualify for better rates.
How to Know If You’re Getting a Competitive APR
When you receive an auto loan offer, here’s how to determine whether the APR is competitive:
- Compare it with market averages for your credit score.
- Check multiple lenders—banks, credit unions, and online providers.
- Get a preapproval before heading to a dealership.
- Watch for rate markups at dealerships, which are common.
- Review the total cost of the loan, not just the APR.
Pro Tip: Dealership financing can sometimes offer great promotional APRs—but always compare them with at least one outside preapproval to avoid hidden markups.
How to Get a Lower APR on Your Auto Loan
- Improve your credit score before you apply.
- Compare multiple lenders—rates vary more than you think.
- Choose a shorter loan term to qualify for lower rates.
- Increase your down payment to reduce principal and lender risk.
- Avoid dealer add-ons that raise your loan amount.
A few simple steps can help you qualify for a much more affordable APR and reduce the overall cost of your car.
What’s Next
Now that you know what counts as a good APR for a car loan, your next step is comparing lenders to find the most competitive rate for your credit score and budget.
Smart Move: Compare offers on our Best Auto Loans page to see which lenders can give you the lowest APR and the most affordable terms.
Related Auto Loan Articles
- How Do Car Loans Work? – Understand the full process from application to payoff.
- Personal Loan vs. Auto Loan – Compare two popular financing options to find which is best for your situation.
- Paying Cash vs. Auto Loan – Learn when financing makes sense and when paying cash may save you more.
- 2025 Auto Loan Industry Study – See current APR trends, borrower behavior, and lender statistics.
- Unsecured Auto Loans – Explore when unsecured auto financing works—and the risks to watch out for.
FAQs
What APR is too high for a car?
In short, an APR on a car is too high when it makes it difficult to afford the payments. While it’s often worth waiting to improve your financial situation to get a better rate, that’s not possible for everyone with bad credit. If you have to finance a car with a rate that’s higher than you’d like, you can try to refinance later when your finances improve.
How do you negotiate APR on a car?
When you’re shopping for a car, you can negotiate with your lender for a lower rate. It’s easier to negotiate if you have a solid credit report or if you’ve been preapproved for a lower rate from another lender. That way, you can ask your preferred lender if they’ll match it.
Are personal loans a good option to finance a car?
A personal loan can be used for just about any type of purchase, including a car. The benefit of that type of financing is that your loan isn’t secured by the car, meaning the lender can’t repossess your car if you fail to make your payments. However, personal loans tend to have higher interest rates than secured auto loans.
Key Takeaways
- A good APR is subjective and may differ for borrowers depending on their credit scores, vehicle type, loan term, the current market and other factors.
- At the end of 2021, the average auto loan APRs for a borrower with a high or very high credit score ranged from 2.47% to 3.51% for new car financing, and 3.61% to 5.38% for used car financing.
- A good annual percentage rate can save you money each month on your car payment, as well as help you pay less interest over the life of your loan.
- You can find a better car loan APR by shopping around for interest rates from several lenders, and by increasing your credit score before taking out a loan.
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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