Average car loan interest rates based on credit score
Like auto prices, auto loan interest rates vary widely, depending on several factors like the type of vehicle, the loan provider (dealership financing vs. credit union or bank financing), and most importantly, the buyer’s credit score.
When it comes to car loan interest rates based on credit score, having a higher credit score typically translates into a lower interest rate.
At Credit Union of Southern California (CU SoCal), we make getting a car loan easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.
What are auto loan interest rates by credit score? Read-on to learn more.
Get Started on Your Auto Loan!
New car auto loan interest rate by credit score
As the Consumer Financial Protection Bureau explains, there are five credit score levels of a commercially available credit score:
- Deep subprime (credit scores below 580)
- Subprime (credit scores of 580-619)
- Near-prime (credit scores of 620-659)
- Prime (credit scores of 660-719)
- Super-prime (credit scores of 720 or above)
Below are auto loan rates for new cars according to credit score category from Experian’s report:
State of the Automotive Finance Market Q2 2022.
New car auto loan interest rate by credit score:
Superprime (781-850): 3.65%
Prime (661-780): 4.68%
Nonprime (601-660): 7.65%
Subprime (501-600): 11.92%
Deep subprime (300-500): 14.39%
Average interest rates for used cars vs. new cars
These are the latest average interest rates for used cars, by credit score level, according to the Experian 2022 report:
Superprime (781-850): 4.29%
Prime (661-780): 6.04%
Nonprime (601-660): 11.26%
Subprime (501-600): 17.74%
Deep subprime (300-500): 20.45%
How to calculate your monthly auto loan payment
If you’d like to calculate your monthly auto loan payment based on your interest rate, use this formula:
Monthly interest = interest rate ÷ 12 × loan balance
Here's an example, based on a $20,000 loan balance with a 6% interest rate:
0.06 (interest) ÷ 12 (months) = 0.005
0.005 × $20,000 (loan Balance) = $100 monthly interest
Use this
Car Loan Payment Calculator to help you determine how much you can spend and estimate your monthly payment.
Other factors that affect your car loan interest rate
While a person’s credit score plays a large role in getting a good low interest rate on a vehicle loan, there are other factors that lenders look at to determine what rate to offer.
Credit history. Lenders will look at the borrower’s credit history to see if there are missed or late payments on other loans and debt.
Loan term. Term is the length of time the loan is in place. A longer term loan may have a lower interest rate, but you’ll pay more in interest over time.
Market rates. All interest rates follow an economic index. As indices fluctuate, so do interest rates.
Loan-to-value (LTV) ratio. LTV is a number that compares the amount of the vehicle loan to the value of the vehicle. For example, if you want to borrow $30,000 for a car worth $60,000, that’s an LTV ratio of 50%. The lower the LTV ratio, the lower your interest rate is likely to be.
Down payment. Making a large
down payment on a vehicle purchase reduces how much of a loan you’ll need and therefore how much you’ll owe. A large down payment decreases the risk associated with your loan. As a result, a large down payment will likely result in a lower interest rate.
Debt-to-income (DTI) ratio. This number reflects your personal debts (such as a mortgage, credit card debts, student loans, etc.) compared to how much income you earn. Lenders look for a low ratio of debt payments to income, as it shows that debts are not exceeding income, and therefore the loan is less risk to the lender. The lower your DTI, the lower the interest rate you’ll be offered.
Vehicle's age and condition. Car loan interest rates on used vehicles tend to be higher than on new vehicles because of the value of the vehicle. Should you fail to repay the car loan, the lender can repossess the car and sell it to regain their financial loss.
How to get a lower auto loan interest rate
Although there are many factors that affect the auto loan interest rates, there are steps you can take to be proactive in obtaining a lower auto loan interest rate.
Comparison shop. The first step in your buying experience should be comparison shopping, not only for the type of vehicle you want but for the loan interest rate as well. Start by talking to the financial institution where you do your banking. Credit unions, including CU SoCal, have some of the lowest interest rates on
auto loans.
Increase your down payment. The more money you can save for the down payment, the lower the loan amount you’ll need, and the less you’ll end up paying in interest over the life of the loan.
Set up automatic payments. Many lenders provide an interest rate discount for borrowers who set up automatic payments though their checking account. Lenders see this as a reduced risk for borrower default and therefore provide a better rate.
Get a co-signer. Having a family member or friend co-sign the loan can make getting a loan easier, as it reduces the lender’s risk. Having a co-signer means both parties will share the responsibility of the debt. If the primary borrower fails to pay, the co-signer must pay.
Buy a newer car. As we mentioned earlier, buying new or newer vehicles can get you a lower loan interest rate.
Get a shorter loan term. Shorter term loans also feature lower interest rates.
Consider refinancing. It is possible to
refinance an auto loan. If you like your current vehicle but have a high interest rate, you may refinance to take advantage of a lower rate. If you owe more than your car is worth, it’s generally not a good idea to refinance.
Improve your credit score. Even people with
bad credit can often qualify for a car loan, although the interest rate will be higher than it is for people with good credit. Try these
tips to build your credit score fast.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Your Auto Loan!