Annual percentage rates (APRs) for auto loans vary depending on various factors. While the national average for a 60-month auto loan is typically around 5.27%, you could end up paying an APR of between 3% and 10%. Read on to understand how you can avail the lowest interest rate on your next auto loan.
Your Credit Matters
A good credit score indicates that you are creditworthy, and lenders are more likely to approve your loan. If you have a high credit score of 760 and above, you could be offered a loan with an APR of as low as 3%. People with a bad financial history typically pay higher interest rates, sometimes up to 20%, as lenders feel that they are more likely to default on repayment.
Look at Term Length
While banks and lending institutions offer repayment terms between 36 and 72 months, APR on these fall between 4.21% and 4.5%. In America, the commonly chosen term is the 63-month repayment plan which carries an average interest rate of 4.37%. Typically, while you’ll make smaller principal payments in longer tenure loans, shorter loans have lower interest and can help you save in the long run.
Shop Around for Lenders
With several banks and financial institutions offering auto loans, doing your homework could help you bag the lowest interest rate. These include:
Banks: Banks offer loans with an APR as low as 3% right up to 25% depending on your credit score.
Credit Unions: While credit unions most offer impressive interest rates between 1.99% and 18.99%, they tend to offer the benefits of low interest only to their members.
Dealerships: Top automakers like GM, Ford, and Honda also offer enticing interest rates if you finance a brand new car through their dealerships. To bag your business, they offer attractive financing plans with an APR as low as between 0% and 0.9%.
Consider the Vehicle’s Age
While most lenders won’t finance older cars, the ones that do, charge high interest, and offer shorter repayment plans.
So, if you’re in the market for an auto loan, maintaining healthy credit can go a long way in helping you secure the best interest rates.