What is a Good Interest Rate for Your Car Loan?
How does interest work on a car loan? When you are ready to purchase your next car, you’ll want to make sure you are getting a good interest rate on your car loan and avoid overpaying. The interest rate depends heavily on your credit score, so we’ve made a chart on average new and used car loans based on credit scores and the APR, or Annual Percentage Rate, for that average. Learn about rates below, then apply for financing
at Federico Chrysler Dodge Jeep RAM near Alton!
New and Used Car APR
|Average New-Car Loan
||Annual Percentage Rate
||Average Used-Car Loan
||Annual Percentage Rate
What Is a Simple Interest Loan?
Most car loans are simple interest loans, as opposed to compound interest loans:
- With simple interest loans, the interest charge is calculated only from the amount owed on the loan, which saves the driver money:
- amount owed on the loan principal x interest rate
- With compound interest loans, the interest charge is calculated from the amount of interest that has accumulated as well as the amount owed on the loan.
- (amount owed on the loanprincipal + current interest owed) x interest rate
How Do You Get the Best Interest Rate?
In order to get the best interest rate, the first thing you’ll want to do is plan ahead.
- Check your credit history and note the score. The higher the credit score, the lower your interest rate.
- Be ready to negotiate. So what is a good car loan rate? Based on the chart above, it could be anywhere between 3.17% and 13.76% depending on your credit score.
- After looking at this chart, plan the rate you want and be prepared to negotiate if they offer you something higher than you expected.
- Be mindful of what the dealer is actually offering you for that rate. You don’t only want to focus on the payment and ignore the rest of the deal. Pay close attention to the details.
What is the Average Interest Rate on a Car Loan?
The average interest rate for a three-year loan is around 3% to 4.5%, but it may vary depending on your credit score as well as who is giving you the loan. In the end, the easiest way to compare your car loans and interest rates is to shop around or get pre-approved and compare that way.
Get Started on the Loan Process at Federico Chrysler Dodge Jeep RAM
Once you’ve found the car you like, use our payment calculator tool to estimate your monthly payments. Our finance center can help you with the pre-approval process and get you behind the wheel of your dream vehicle at a reasonable rate. Contact us to compare rates or to get the process started today. We’ll be for you every step of the car-buying process.