How to get the best auto loan rate
Key takeaways
Borrowers with favorable credit scores — 670 or higher — generally qualify for auto loans with the most attractive terms.
If your credit score is on the lower end, review your credit report and create a plan to improve it before applying for an auto loan.
It's worth arranging financing before shopping for a vehicle so you can negotiate more effectively at the dealership.
Shop around with three or more lenders and get prequalified to find the best deal on an auto loan.
Negotiating a great price is just half the battle when shopping for a car. You need an auto loan with competitive terms to make it a great deal. Loans vary by lender, the borrower’s credit and regional factors. Shopping around with at least three lenders and getting prequalified is the best way to get a car loan with favorable terms, potentially saving you thousands in interest.
When comparing your loan options, be mindful of the interest rates, terms and fees quoted by each lender. The best way to finance a car is to get your credit score in the good to excellent range — typically 670 or higher — before getting a car loan. But if that’s not practical, you can try other strategies.
6 steps to get the best auto loan rate
Do not wait until you arrive at the dealership to secure financing. Although many dealerships shop your information around on your behalf, you will be limited to loan offers from lenders in their network. That means the terms you receive may not be the best available. You may struggle to negotiate favorable terms with the dealer if you don’t already have an offer for a loan.
Shopping around and getting your finances in order before you apply for an auto loan can help position you for a great deal.
1. Check and improve your credit score
The first step in this process is getting familiar with your credit history. Your credit score is one of the biggest factors determining your auto loan interest rate. The higher your credit score, the lower your rate.
Credit score | Average interest rate for new car loans | Average interest rate for used car loans |
|---|---|---|
781 to 850 | 5.61% | 7.43% |
661 to 780 | 6.88% | 9.33% |
601 to 660 | 9.29% | 13.53% |
501 to 600 | 11.86% | 18.39% |
300 to 500 | 14.17% | 21.18% |
Source: Experian State of the Automotive Finance Market Q3 2023
You can check your credit score online, and your bank or credit card issuer may provide you with a free update every month. If you’d like a more detailed view of your credit health, you can access your credit reports from each of the three main credit bureaus (TransUnion, Experian and Equifax) at AnnualCreditReport.com.
Minimum credit scores vary by lender, but you’ll typically need a score in the low- to mid-500s to qualify for a car loan and above 700 to receive the best rates. If you have a low credit score and get approved for a car loan, you could pay a fortune in interest.
If your credit score needs work and you can wait to purchase a car, take time to improve it before applying for your loan. Pay down existing debt, make timely credit card payments and don’t submit any other credit applications for home mortgages, lines of credit or credit cards.
Don’t have time to improve your credit score before applying? Compare multiple lenders to find the best bad credit loan available to you.
Bankrate tip
Consider signing up for a free Experian account to view your credit summary. Or you can use programs like CapitalOne’s CreditWise, Discover’s Credit Scorecard or Chase’s Credit Journey to view your credit profile for free.
2. Get quotes from lenders you already work with
Already have a mortgage or personal loan? A long-term established relationship with a bank or credit union? Use these to your advantage.
Lenders may consider your positive history together when you apply for an auto loan. This could mean an easy application process or result in lower rates. It’s not guaranteed, of course, but borrowing from a lender you already use may mean you pay a little less in the long run.
3. Do your research
Online research is key when deciding which auto loan is right for you. An online car finance calculator can help you determine which type of financing suits you, and reviews of auto loan lenders can help you narrow your list of potential lenders to consider.
When exploring your options, consider traditional banks, credit unions and online lenders, as they all offer auto loans.
Pay close attention to interest rates, repayment terms, required money down and any fees and penalties that may be included. You can use Bankrate’s auto lender reviews and the Better Business Bureau to look up lenders to see if they’re trustworthy.
4. Shop the total loan amount, not the monthly payment
Some lenders stretch out the repayment period on car loans and market the lower monthly payment to make the loan more enticing. But if you choose a longer repayment schedule, you could end up paying more for the car than you initially intended due to the additional interest payments you’ll make over the life of the loan.
You should only consider the monthly car payment when you privately calculate how much you can afford and want to spend on your car. Avoid discussing monthly payments with potential lenders.
5. Limit loan applications to a two-week period
Every time you apply for a loan, a hard inquiry is generated. However, both the FICO credit scoring model and VantageScore let you shop around for a car loan within a certain window and count all new applications for credit as a single inquiry. This is called rate shopping. While it will temporarily drop your credit score by a few points, you won’t get multiple dings.
Some lenders also offer online prequalification tools that allow you to view potential loan offers, payments and interest rates without affecting your credit score. You can take the process further by getting preapproved to receive a formal loan offer for a set amount. This means the lender has reviewed your credit history and required documentation and decided you are a good fit for an auto loan. Most auto loan preapprovals are valid for 30 to 60 days.
Bankrate tip
Limit your car loan application period to reduce any negative impact on your credit score.
6. Compare car loan quotes
Once you’ve completed your research and have a shortlist of preferred lenders, compare interest rates and terms with at least three lenders. The best way to do this is to get quotes from a few companies since the lowest APRs advertised on their websites won’t necessarily be the APR you’ll receive. Refer to the preapprovals you got in the last step if they’re still valid. Otherwise, resubmit your information for updated quotes.
When reviewing quotes, pay close attention to the APR and repayment terms. Even if a longer-term loan has a lower monthly payment, you’ll pay more interest over time.
7. Read the fine print
After getting loan quotes, look through the fine print. This binding agreement will follow you for years, so you need to know what you’re agreeing to.
The Truth in Lending Act (TILA) requires lenders to disclose the cost of borrowing money, the interest rates and fees upfront in a manner that’s easy to understand. This protects borrowers from harmful lending practices. Steer clear from lenders who try to hide or gloss over this information.
Pay close attention to the mandatory binding arbitration, prepayment penalties, loan processing costs and other fees the lender may charge. Binding arbitration removes your ability to sue the lender if something goes wrong, and prepayment penalties may be assessed if you pay off the loan early.
The bottom line
The three main factors in getting the best rate for an auto loan are your credit score, finances and the lender. Find out in advance the average interest rates for your credit score and compare the rates and terms offered by several lenders before you apply.
This will put you in a good position to negotiate financing at the dealership — if that’s your choice. And if you don’t want to go with dealer financing, you can still narrow your options and select the lowest rate or best terms for your auto loan.
Frequently asked questions
Here are the answers to some commonly asked questions that could help you get the best auto loan rate.
Can you get a 0% interest rate on a car?
Getting approved for a 0 percent interest rate on a car loan is possible. Automakers sometimes offer these loans through their financing companies to attract well-qualified customers and boost sales. You’ll typically need an excellent credit score — usually 800 or above — to qualify. Most lenders also evaluate your employment history and debt-to-income ratio to determine if you’re a good fit for a 0 percent interest rate car loan.
What is conditional financing?
Conditional financing is a statement from your lender listing the conditions you must meet to receive your loan funds. If the financing is “contingent” or “conditional,” the lender can change your agreement later, leaving you with less advantageous terms.Never take a car from a dealer until the financing — down payment amount, interest rate, length of the loan and monthly payments — is finalized. Be aware of yo-yo scams, which involve the dealership offering you a low interest rate only to rescind their offer later and swap it out with a much higher rate. You can avoid these scams by reading the fine print, asking questions to clarify disclosures you don’t understand and walking away if the terms do not work for you.
What is a good auto loan rate?
A good auto loan rate is generally any rate below the average for your credit profile. For drivers with excellent credit, the average rates are 5.07 percent for new cars and 7.09 percent for used, while drivers with poor credit may see average rates of 14.18 for new and 21.38 percent for used. Shop around so you can choose from workable rates for your financial situation. A good loan has low fees and offers repayment terms that make sense for you.
How do you preapproved for an auto loan?
You can typically get preapproved for an auto loan online. The lender will run a hard credit check and ask for basic financial details, including your Social Security number, employment status, state ID and income. You’ll often receive a decision from the lender in minutes.
Should you consider saving up for a down payment?
It’s usually best to save up for a down payment when applying for an auto loan. You could get a lower monthly payment and qualify for a better rate. Edmunds recommends aiming for 20 percent down, but the average down payment is closer to 13.5 percent.
Can you negotiate auto loan rates?
Yes. Like you negotiate vehicle prices, you can try to lower your interest rates before signing off. One of the best ways to secure a lower rate is by making a larger down payment or choosing a shorter term.
When is the best time to buy a car?
The best time to buy a car tends to be the end of each month and the end of the year, as dealers are trying to reach quotas. Other times to look for deals include the start of the week, Black Friday and holidays, such as Presidents Day, Memorial Day, the Fourth of July, Labor Day and New Year’s Eve.
