Getting a great rate for your car loan doesn’t have to be tricky. AutoGravity can show you how to find and compare car loan rates.
As interest rates climb and super-low and zero-interest auto loans become scarcer, it’s becoming increasingly important to shop around to find and compare car loan rates in order to find the best auto loan rates.
While it can seem daunting, there are things you can do to get a good car loan rate and save a significant amount of money. AutoGravity will show you how to find and compare the best car loan rates.
Here are the relevant sections:
- How do you compare car loan rates?
- What does the term rate of interest mean?
- What does the term annual percentage rate or APR mean?
- How do interest rates differ from annual percentage rates? Which one matters when comparing car loans?
- What does the term credit score mean? What’s considered to be a good credit score? What is a bad credit score? What relevance does it have when comparing a car loan?
- What does duration or term mean in car loans?
- What is the average auto loan interest rate today?
- What is the highest auto loan interest rate today?
- What is the lowest auto loan interest rate today?
- How do you get a better car loan rate?
You compare car loan rates by looking at specific terms like interest rates, length of loan, and any additional costs associated with that car loan, across specific auto loan products from a wide variety of lenders. Once you have all the information you need, cross reference it with your needs to find the loan that works for you.
To do this, it’s best to start with a quick Internet search to find lenders that meet your needs.
Some of the criteria you should apply when looking for lenders, include:
- Geographic location: Do you like to pay your loan in person or do you bank online? Your preference will impact the car loan rates you compare.
- Size of bank: Large or small, they all have pros and cons. Check out our story on Finding the Best Auto Financing for a more in-depth look regarding the impact that bank size has on your car loan.
- What kind of support (a.k.a., how much support) will you need for your car loan? Take into consideration the level of customer support and resources you may need when dealing with your car loan. If you’re a first-time borrower, you may want a lender who provides more support than others.
- Bank, Credit Union, online lender, dealership or private lender? They all have pros and cons. So, before you decide on how to compare car loans, you need to determine what type of lender is right for your needs. For more on this, read our story on Finding the Best Auto Financing.
- How much you plan to borrow: This comes down to your budget and what you plan to spend on your new or used car. A good rule of thumb is that the more you borrow the more it will cost you to get a loan.
In addition to considering the kinds of lenders from which you might want to compare car loan rates, it’s also important to consider the reputation of those lenders, because some have reputations for aggressive collection practices and other questionable tactics.
Whichever lender you decide upon, ensure it’s FDIC insured. It’s also a good idea to check them out on the Better Business Bureau website to see if any major complaints have been made against the lender.
Finally, it also pays to simply do a quick Google search for recent news about the banks you’re comparing, so you can learn more before you decide on their car loans.
Before you start comparing car loans though, it’s important to understand the terms used in car loans. Read on for more.
Rate of interest is also known as the interest rate, and it’s the amount of money that you pay to the bank for the loan. Essentially it’s what the bank charges you to borrow their money.
The interest on a loan generally includes things like your annual percentage rate and any lender fees that the bank charges on the money they’ve loaned you. And, it’s based on your credit score.
According to Investopedia, Annual Percentage rate (APR) is the “annual rate charged for borrowing,” and it’s usually written as a percentage. The APR generally provides a universal comparison point for loan rates.
Depending on your credit score, APRs can change both within and across lenders.
How do interest rates differ from annual percentage rates? Which one matters when comparing car loans?
Interest rates differ from an APR in that an APR generally includes any additional fees that you may pay to borrow the money for your car loan. As mentioned above, it provides a good reference point when comparing car loans.
What does the term credit score mean? What’s considered to be a good credit score? What is a bad credit score? What relevance does it have when comparing a car loan?
Your credit score is a number that is assigned to you by various agencies (called credit bureaus) that indicates, to a lender, what your ability to repay a loan may be. Consider it like a grade — the closer your credit score is to 850, the higher your grade.
According to the credit bureau, Experian, the ranges for credit scores are:
- Excellent credit: 750 and above
- Good credit: 700 to 749
- Fair credit: 650 to 699
- Poor credit: 550 to 649
- Bad credit: 550 and below
Your credit score shows a lender how worthy you are to borrow money, and lenders use this score to help reduce their risk of lending money to people who are not likely to pay it back.
Your credit score includes a number of things:
- Your credit history (e.g., How long you have had credit in your name.)
- The amount of outstanding debt that you are carrying — known as your credit utilization rate or credit usage.
- What kind of debt you carry. This is known as your credit mix, and it includes things like revolving credit or credit cards and installment credit like student loans, car loans and home loans.
- Whether you pay on time, late or not at all — this is known as your payment history.
- Whether you have any accounts that are in collections.
- If you’ve gone through any bankruptcies.
When comparing car loans, your credit score gives you a good idea of what your APR might be, since APRs can vary both within the same lender and across lenders. Your credit score significantly impacts your APR, and your interest rate for a car loan.
Duration or Term is the length of time (usually expressed in months) that you have to pay back the money you’ve borrowed for a car loan.
Commonly, car loans come in various durations or terms. These include:
- 24-month or 2-year
- 36-month or 3-year
- 48-month or 4-year
- 60-month or 5-years
- 72-month or 6-years
The most common term for a new-car loan is 60 months, and the most common term for a used car is 72 months.
Today, nationwide car loan rates are hovering right around 4.21% for a 60-month loan. Typically, the average APR for car loans ranges between 3 and 10 percent, according to Value Penguin.
Car loan rates change based on interest rate policy that’s set by the Federal Reserve Bank and the Federal funds rate. These rates are used to set the cost of borrowing among banks, and those rates impact the rates that you see when comparing a car loan.
If you’re interested in learning more about how the Fed sets rates, read more at Investopedia.
The highest car loan rate today is rapidly approaching 30 percent but range between 24 and 30 percent and are usually only applicable to those who have poor or bad credit.
When you have poor or bad credit, the best thing to do is to try and improve it before applying for a car loan. That way, you can save money in the long term.
If you don’t have the time to repair your credit and are forced to get a car loan with a very high interest rate, you should know that you don’t have to feel locked into it. When your credit improves, you could refinance that auto loan.
The lowest car loan rate today is zero percent. These deals are harder to find and often come with lots of strings attached, so buyer beware.
These deals are usually available through dealerships, and you usually have to have a credit score above 700 to qualify, though the range can vary from lender to lender. At AutoGravity, you can find deals for specific manufacturers and apply before you head to the dealership. These automakers include:
- Volkswagen (VW)
If you do qualify for a zero-percent loan, be sure to read the fine print and know what kind of hurdles you may have to cross to get the loan. It may require that you put down more money up front, or that you’ll have a shortened loan term, so be aware.
To get a better car loan rate, you have a few options:
- Shop around and compare rates. Use APR as the point of comparison, because it takes into consideration a number of things like added fees and serves as a good snapshot of a car loan rate.
- Compare the loan separately from the cost of the car. Once you’ve set your budget for how much you want to or need to borrow, you can compare apples to apples. Compare only the car loan rates.
- Keep an eye on the loan’s total cost: Do the math or use a car loan calculator.
- Negotiate the cost of the vehicle. The less you have to borrow, the less you’ll have to pay in car-loan costs.
- Negotiate the terms of the loan: get your credit in order and then negotiate with the lender with the lowest rate.
- You can negotiate the length of the loan (keep it shorter)
- Choose to eliminate any extras (avoid add-on warranties, gap insurance, rustproofing, and other costs that can be rolled into the loan at dealerships)
- Keep your emotions out of it. Consider this a business transaction and you’ll do a better job of negotiating your rate
To find some of the best rates car loan rates, check out AutoGravity’s car loan calculator where you can estimate your loan costs and discover more about how to get the best auto loan rates.