What is the actual cost of a standard car loan?

Average APR for a Car Loan

The better your credit and the shorter the length of the loan, the better the annual percentage rate.
The better your credit and the shorter the length of the loan, the better the annual percentage rate.

The annual percentage rate for a car loan can vary greatly. The APR you'll receive is mostly determined by these factors:

  • What's your credit history and credit score like?
  • Are you buying a new or used vehicle?
  • How long will you take to pay off this loan?

The better your credit and the shorter the length of the loan, the better the rate. And loans for new cars get better interest rates than used car loans. Geographic location may come into play as well. Some areas have higher interest rates than others.

Your credit history is compiled by reporting agencies using information from your creditors, including mortgages and credit cards. The agencies use a formula to rate your credit history on a scale of 300 to 850, known as a FICO score. A higher number usually results in a lower car loan interest rate. Advertised interest rates are usually for borrowers with credit scores in the good to great range -- FICO scores above 700, for example.

That doesn't mean those with less than perfect credit can't get a loan; it just means you'll have a higher APR. These days, buyers with the best credit scores can find auto financing at around 6 percent; those with the worst scores may pay around 18 percent [source: Edmunds.com].

If you are able to make a slightly higher monthly payment, the rates for a 48-month loan is usually about a half a percentage point lower than those for a 60-month loan. It may not sound like much, but a half a point can add up over the course of five years. And remember: Interest is only paying for the lender's trouble. The principal is what's paying for your new car.

Just as you would shop around for the vehicle that best fits your lifestyle, you should also shop around for the loan and interest rate that fits your bank account.

For more information about the cost of car ownership, follow the links below.

Related Articles


  • Bankrate.com. (July 14, 2010)http://www.bankrate.com/auto.aspx
  • Edmunds.com. "Auto Loan Calculator." (July 14, 2010)http://www.edmunds.com/apps/calc/CalculatorController
  • Helperin, Joan. "Low or No Money Down? You Need GAP Insurance." Edmunds.com. (July 23, 2010)http://www.edmunds.com/advice/finance/articles/105266/article.html
  • Helperin, Joan. "New Credit Scoring System Affects Auto Loans." Edmunds.com. (July 23, 2010)http://www.edmunds.com/advice/finance/articles/159646/article.html
  • Lending Tree. "Auto Loans and Interest Rates." (July 23, 2010)http://www.lendingtree.com/auto-loans/advice/auto-loan-basics/auto-loans-and-interest-rates/
  • Mello, Tara Baukus. "Car Loan Add-Ons: Are They Worth It?" Bankrate.com. (July 14, 2010)http://www.bankrate.com/finance/auto/car-loan-add-ons-are-they-worth-it.aspx
  • Tucker, Sean. "The 0% Financing Craze: A Good Deal?" US News and World Report Rankings and Reviews. (July 23, 2010)http://usnews.rankingsandreviews.com/cars-trucks/The-0-Percent-Financing-Craze/