One of the most important financial decisions you will make is buying a car. So, it’s helpful to be aware of the average car loan interest rates received by other recent car buyers and the variables that affect this rate.
Along with other prices, car loan interest rates have been high this year. According to Experian, one of the 3 major credit bureaus in the US, during the April-June quarter of 2024, interest rates for new car loans were at 6.84% for new cars and 12.01% for used cars.
The car loan interest rate you qualify for is based on several factors — your income, your credit history and credit score. Banks/lenders use your credit score to estimate how likely you are to repay the loan.
What can help you get a lower rate? Improving your credit score. Generally speaking, the higher your credit score, the lower your car loan interest rate is likely to be. If you have low scores, the lender’s risk increases because they think you are more likely to default on the loan. They offset this risk by offering a higher rate.
If your score is below 500, you will probably get the highest interest rates of 16% or higher for a new car loan, because banks may see your loan as a high-risk loan, while if your credit is 780 and above, you may qualify for a rate under 5% on a new car loan. So, the cost difference between a good credit loan and a bad credit car loan can be huge.
Also, the type of car you want to buy will also impact the interest rate: car loan interest rates for used cars are usually higher than new car interest rates. This is often because the lender has a harder time valuing a used car, so they often raise the loan interest rate to compensate. Knowing whether a used or new car is in your best financial interest will help tremendously.
Here’s an important point to know: Car loan interest rates and annual percentage rates, or APRs, aren’t the same. Interest rate is the percentage you pay to borrow money. APR includes interest rate plus any fees charged by a lender. When comparing loan offers, make sure you are comparing the APR.
The state where you live can also affect the APR, since various state laws require taxes or fees that can push the rate higher. According to Edmunds, the average interest rates in September 2024 for new cars in Pennsylvania was 6.33%, for New Jersey it was 6.4%, for Delaware it was 6.81% and for New York it was 6.53%. The lowest average new car loan rates in the country in September 2024 were in Minnesota and Connecticut, while the highest were in Alabama and Georgia.
If you have time to make your car buying decision, watch out for the Fed rate. When the Federal Reserve (the Fed) changes the federal funds rate, car loan interest rates usually go in the same direction. But car loan rates may move more slowly. Some auto experts say they do not expect these rates to change much before the end of the year.
About those car prices – they’re also at an all-time high. To some extent this is the impact of the COVID pandemic, which led to disruption of supply chains and sent prices for new and used cars soaring. Based on the latest report from Cox Automotive, the average price for used cars is now $25,361 and the average price for new cars is $47,823 as of October.
Some auto experts also say that prices have risen because more and more cars these days are loaded with expensive high-tech features, such as touch screens and 360-degree cameras and advanced safety features.
So, what can you expect to get for your money? Say you want to buy a car that costs about $25,000 and you’re ready to put down $2000 as a downpayment. You could get a new car with a loan interest rate of 6.84%. For example, you could get a 2024 Nissan Sentra SR or a 2025 Chevrolet TrailBlazer LS. Your monthly payment would be $549 and in 48 months you would have made a total payment of about $26,350.
You could get a used car with a loan interest rate of around 12.01% – for example you could get a 2021 Honda Accord EXL with 26,000 miles or a 2021 Jeep Grand Cherokee Limited Edition with 44,000 miles. Your monthly payment would be $605 and over 48 months you would make a total of $29,000 in payments.
It’s worth spending lots of time considering all these factors before making a decision when you’re buying a car – it could save you hundreds, or even thousands, of dollars.
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