If your credit score falls between 661 and 780, we think it's a good idea to shoot for an interest rate of 5% or lower. This will put you well below the average, even compared to other drivers in this credit range.
According to Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, you should feel OK about taking on purposeful debt that's below 10% APR, and even better if it's below 5% APR.
What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.
The law says that the most a lender can charge for an auto loan are about 16% APR, but some lenders get away with 25% or more. Your annual percentage rate (APR) for a car loan depends on your credit score and whether you want a new or used car.
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go. You can learn more about car loans here.
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used. Poor (450 - 649): 12.84 percent for new, 20.43 percent for used.
In early 2023, average rates for new and used vehicles were 6.58 percent and 11.70 percent, respectively, according to Experian. The third quarter brought similar rates, 7.03 percent for new and 11.35 percent for used.
Generally, what's considered a bad interest rate is anything higher than 10%. Ideally, you want to get an interest rate that's below 5% — but with little or bad credit, that can be harder to achieve.
Auto loan rates for new cars were at their highest in the 1980s, when they hit 17.36% in November of 1981. Over the years, recessions and a global pandemic contributed to the volatility of loan rates. Economic experts don't expect the Fed to lower interest rates until 2024.
Minimum credit score to buy a car
Still, you typically need a good credit score of 661 or higher to qualify for an auto loan.
A 72-month loan for a car is a long-term loan, and long-term loans typically come with higher interest. While long-term loans translate to lower monthly payments, they result in more interest paid over the life of the loan. With that said, an interest rate of around 5% for a 72-month auto loan is considered ideal.
For example, if you borrow $100 with a 5% interest rate, you will pay $105 dollars back to the lender you borrowed from. The lender will make $5 in profit. There are several types of interest you may encounter throughout your life.
Let's consider an example to explain the concept further. An individual takes out a $25,000 loan to buy a car. The loan comes with a fixed APR of 5% and must be paid back over the course of five years. This means that the individual will need to make regular monthly payments of around $470.
One way to lower the interest rate on a car loan is to compare rates and payments terms from different sources to know all your options. Be sure to ask your current lender for a lower APR on your car loan. If you are denied a loan, inform them of your other offers and see if they will match or beat the lowest offer.
But after two years of increases, there are strong indications that auto loan rates could start to come back down in 2024 — perhaps by a substantial amount.
Key takeaways. Your credit card APR can go up if the prime rate changes, you paid your credit card bill late, your intro APR offer ended or your credit score dropped. If your APR increases, you can work on paying down your balance or transfer your balance to a card with a low or 0 percent intro APR offer.
Such rates have pushed vehicle loans closer to what's commonly considered high-interest debt — generally, any debt with an interest rate higher than 6% to 8%. If the interest rate on your auto loan is within that range, or exceeds it, here's why it might be a smart move to work toward paying it off early.
If you can get a rate under 6% for a used car, this is likely to be considered a good APR.
Not everyone can qualify for an interest-free loan. In fact, lenders or dealerships might review several requirements, including: Credit score: You might need a credit score of at least 740 to be considered for a 0% APR loan.
Car payment statistics
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.