How to Get the Best Auto Loan Rates

3 min read
woman and man sitting in front seat of car smiling

In the market for a new or used car? If you’re planning to finance that purchase, you’re probably wondering how to get the best auto loan rate possible. After all, your car loan rate directly impacts your monthly payments and how much money you’ll spend on interest.

But what is a “good” annual percentage rate (APR) for a car loan? Recently, average new car loan interest rates have ranged from about 2 to 5 percent, depending on the lender, term (length of loan), type of vehicle (new or used), down payment, credit score, and other credit and vehicle characteristics. Add to that potential financing fees or interest markup, and your rate can really do a number on your wallet.

Tips on Getting the Best Auto Loan Rate

Fortunately, there are some tried and true tips for getting the lowest auto loan rates. Here are five ways to reduce your rate:

1. Take care of your credit

Generally speaking, the higher your credit score is, the lower your rate will be. Here are a few credit score hacks you can take to get your credit in better shape before taking out a car loan:

  • Check your credit report. Look for errors and contact the credit agency about any errors

  • Pay your bills on time. If you have trouble remembering, consider setting up automatic payments for the monthly minimum amount – you can always make an additional monthly payment if you’re feeling flush.

  • Pay down debt fast. Credit utilization, or credit card balance vs. credit limit, makes up a large portion of your credit score. A general rule of thumb is keeping your credit utilization ratio below 30 percent.

2. Know the difference between APR and interest rate

An auto loan interest rate is the cost to borrow money, expressed as an annual percentage (e.g., 3 percent per year). It’s pretty easy to calculate how a simple interest rate might impact your monthly payments and total interest cost using a loan interest calculator.

APR, on the other hand, is not so straightforward. It reflects the annual interest rate plus some of the fees the lender is charging you, so it’s a more complete picture of your cost of borrowing. For that reason, and because APR can often be higher than simple interest rate, when considering apr vs interest rates, it’s best to use APR when comparing rates on auto loans.

3. Closely examine dealer financing options

A dealership can be a great place to buy a car, but it’s usually not the best place to get a car loan. Auto dealers often mark up the interest rate, charging as much as 3% more than the APR you might have qualified for with another lender. Do your homework beforehand by comparing rates at banks, credit unions and online lenders, then get pre-approved and show up at the dealer with your conditional commitment letter in hand.

4. Make a down payment

Buying a car doesn’t usually require a down payment, but making a down payment can be a good idea. One rule of thumb is to put 10 percent down on a used car and 20 percent down on a new car, but the ideal down payment is really the one you can afford. Generally, a larger down payment may reduce your interest rate. As a bonus, a higher down payment translates to a lower total interest cost, since you’ve reduced the amount you need to borrow. If you don’t already have a down payment saved up, it may be worth doing before pulling the trigger on your new car. You can also weigh your options between leasing vs buying a car before making your final decision.

5. Know your refinancing options

If you already took out a loan but didn’t get the best car loan rate, don’t despair—the rate you got when you took out the loan might not be the rate you’re stuck with forever. LendingClub makes it easy and fast for eligible consumers to refinance a car loan online at a lower interest rate. You can check your rate in less than a minute without impacting your credit score.

How do you lower your car payment?

If you’re more concerned about getting a low car payment vs. getting the best car loan interest rate, refinancing can help you with that, too. When you refinance a car loan through Lending Club, you could be eligible to extend the term (or repayment period) and lower your monthly payments, giving you some extra cash in your pocket and helping you grow your savings. Check your rate now to see if refinancing can make those payments easier to cover.

Check Your Rate

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Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,854 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,191, for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states. 

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2023 and are subject to change without notice. 

Checking a rate through us generates a soft credit inquiry on a person’s credit report, which is visible only to that person. A hard credit inquiry, which is visible to that person and others, and which may affect that person’s credit score, only appears on the person’s credit report if and when a loan is issued to the person. Credit eligibility is not guaranteed. APR and other credit terms depend upon credit score and other key financing characteristics, including but not limited to the amount financed, loan term length, and credit usage and history.  

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