Yes, a 16% interest rate on a car loan is quite high, generally considered subprime or deep subprime, reflecting poor credit, but it's in the range seen for borrowers with lower credit scores (below 600) for used cars, while higher for new. Rates for prime borrowers (good credit) are often in the single digits, so 16% means you'll pay significantly more over the life of the loan.
With an average credit score (between 620 and 739), a credit card APR of around 16% is considered good. Rates above 25% are common for subprime credit cardholders (aka people with scores below 620) because lenders see them as a higher risk.
Used Car Loans: Why Higher Credit Scores Help You Save Money
Typically, a credit score below 589 is going to give you a higher interest rate. You could pay 16% or more. Having a credit score between 590 and 619 tends to take shoppers closer to the 10% mark.
Because everyone's situation when car shopping will be different, there's no one exact answer to what is too high an interest rate for a car loan. The interest rate you are likely to be offered is based on several main factors that will be specific to you.
A 15% APR is good for credit cards and personal loans, as it's cheaper than average. On the other hand, a 15% APR is not good for mortgages, student loans, or auto loans, as it's far higher than what most borrowers should expect to pay.
Quick Answer. If you need to get out of a car loan you can't afford, options to consider include negotiating with your lender, refinancing your loan, selling the car or voluntarily surrendering it to avoid repossession.
Car Loan APRs by Credit Score
As of 2022, the average interest rate for car loans was 4.07 percent for new cars and 8.62 percent for used cars. However, these rates are just averages—you might get a higher or lower rate based on several personal factors, like your lender and the age of your vehicle.
A penalty APR is on your card.
Even people with good credit scores make mistakes, and a bank may charge a penalty APR on your credit card without placing a negative mark on your credit report. Penalty APRs typically increase credit card interest rates significantly due to a late, returned or missed payment.
Why are car interest rates so high? Choices by the Federal Reserve affect the benchmark rate, which lenders use to set the cost of vehicle financing. Although auto loan rates depend on several factors — including your credit history — increased inflation means even drivers with perfect credit face higher rates.
Dealers might not offer you the lowest rate that you qualify for. To get the best interest rate, shop around with multiple lenders and negotiate. There are a number of ways you can get or finance an auto loan, including going directly to a bank, credit union, or finance company, or going through your dealer.
Dave Ramsey's core car rules emphasize paying cash, avoiding new cars (unless you're a millionaire), keeping your total vehicle value under half your annual income, and using a strict budget, often suggesting the 20/4/10 rule (20% down, 4-year loan, 10% total car expenses) as a guideline if financing, but preferring no debt at all to avoid depreciating assets trapping you. He stresses buying reliable, used vehicles to prevent debt and build wealth.
When getting an auto loan, negotiating certain terms and features, including interest rates and add-ons, can save you hundreds or even thousands of dollars. In addition to the price of the vehicle, there are the terms and costs of the auto loan that you may be able to negotiate or control.
Good to know: Average credit card APR is 15%
Can you negotiate a high APR? Yes. Many cardholders don't realize they can ask their credit card company for a lower rate. While there's no guarantee they'll say yes, it's worth trying—especially if you've been making consistent, on-time payments.
Paying only the minimum payment
Paying only the minimum payment may help keep your account in good standing and typically means you won't have to pay late fees or penalties. But it means you'll carry a revolving balance, and that might accrue interest, which is added to your balance.