If you’re looking to get a great deal on a new or used car, you’ll likely need to do more than negotiate a good price with the dealer. Unless you’re paying all cash, you’ll also need to get a great deal on your auto loan.
Lowering the annual percentage rate (APR) of a car loan is one of the best ways to save on vehicle financing and the total cost of buying a car. Even just a 1% difference in your APR could add up to hundreds of dollars in savings over the life of the loan. Loan APRs vary with the lender, so it can pay to shop around.
Keep reading to learn more on car loan APRs, how to get a lower APR, what’s considered a good APR on an auto loan, and more.
Key Points
• A higher credit score can significantly lower your APR, so focus on paying bills on time, reducing credit card balances, and addressing any errors on your credit report.
• Don’t settle for the first offer you receive. Compare rates from multiple lenders, including banks, credit unions, and online lenders, to find the best deal.
• If your credit score is not strong, adding a cosigner with a good credit history can help you secure a lower APR.
• Putting down a larger initial payment can reduce the loan amount and lower the risk for the lender, potentially resulting in a lower APR.
• Don’t be afraid to negotiate the terms of your car loan. Some lenders may be willing to offer a better rate if you show you are a responsible borrower.
What Is APR?
When shopping for a car loan, it’s important to understand that APR and interest rate are two different things.
Interest rate refers to the annual cost of a loan to a borrower and is expressed as a percentage. APR is the annual cost of a loan to a borrower — including fees — and is also expressed as a percentage.
Why the distinction? The APR is intended to give you more information about what you’re really paying. The federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing loan offers apples to apples.
How APR Works for Auto Loans
The way auto loans work is that the APR you pay accounts for your car loan interest charges plus all other fees you have to pay to get your loan. In general, borrowers with higher credit scores will qualify for loans with lower APRs. Lenders view borrowers with poor credit as being more likely to default on their loans. To compensate for this risk, they will often charge these borrowers higher APRs.
The total amount of a loan and the length of the loan (called the loan’s term) can also impact a car loan’s APR. Lenders typically charge a higher APR for larger loans, as well as longer term loans, since they represent higher risk.
Recommended: How to Calculate APR on a Car Loan
Can You Negotiate APR on a Car Loan?
Yes, in many cases, the APR on your car loan is negotiable. In fact, the first interest rate that dealers quote you may not be the lowest that you actually could qualify for, so negotiating is often a good idea. A lower APR can lower your auto loan payments.
Recommended: Guide to Car Loan Modification
Tips for Getting a Low APR on a Car Loan
To help get the lowest interest rate on a car loan, consider the following steps.
Build Your Credit
Your credit score has a major impact on the APR a lender will offer you on a car loan. You often need a score in the mid-600s to qualify for an auto loan, and above 700 for the best rates. You may be able to get your score for free on your credit card statement or online account, or you can buy it from a credit reporting agency.
If your credit is less than ideal, consider taking some steps to build your credit before you apply for a car loan. Things that can help include making your debt payments on time, paying down your debt, and making sure you aren’t getting close to your credit limit. Applying for new credit triggers a hard credit pull, which can temporarily dink your score, so also be sure you only apply for the credit you really need.
Shop Around
Rather than assume you’re getting the best rate and terms from the dealer, it can be wise to do some loan scouting on your own. Many lenders will show you preapproved rates and terms online after you fill out a short application. This generates a soft credit pull, which won’t impact your credit.
Taking the time to get quotes from different lenders (both local and online) can help you find a great deal. It can also give you more leverage in negotiations because you’ll understand the going rates with your particular credit score for the car you’re interested in.
Make a Bigger Down Payment
Auto lenders often require borrowers to make a down payment on the loan. Doing so makes the buyer put more skin in the game and reduces the likelihood that they’ll default on the loan (since their own money is at stake, too). The larger your down payment, the less risk you pose to the lender and the lower an APR they’re likely to offer you. You’ll also pay less in total interest because the overall amount you need to borrow will be lower.
Choose a Shorter Term
Banks generally see loans with longer terms as riskier than loans with shorter terms. That’s because they worry borrowers are more likely to default in the long run. They encourage shorter terms by offering lower APRs. Be aware that shorter terms usually mean you’ll have a higher monthly payment.
Use a Cosigner
If you have poor or thin credit and you’re having trouble finding a loan with an affordable APR, you might consider using a cosigner who has better credit than you do. Cosigners are typically family members or close friends, and they agree to make loan payments if you can’t. This stop-gap measure means banks are less worried about a default and may offer you a lower APR.
Borrow Less
Buyers who need to borrow less money are less risky to lenders and may qualify for lower APRs. You can borrow less by choosing a cheaper vehicle, buying used instead of new, or forgoing expensive add-ons and trim levels. You may also be able to borrow less by negotiating a lower purchase price with the dealer.
What Is Considered a Good APR on a Car Loan?
The average car loan APR in Q1 2025 for new cars was 6.73% and for used cars was 11.87%, according to Experian®. Borrowers with the highest credit scores typically qualify for the lowest rates. For example, buyers with excellent credit — scores in the 780 to 850 range — may be able to qualify for new car loan rates closer to 5%. If you have poor credit, on the other hand, you may need to pay more than the average APR for a car loan.
Recommended: Average Car Loan Interest Rate by Credit Score
Other Ways to Lower Your Interest Rate
Even if you already have a car loan, there are ways you may be able to lower the amount of interest you pay.
Prepay Your Loan
One option is to prepay your loan. Auto lenders typically calculate the interest you owe based on your loan balance. By making extra payments, you can reduce your balance and, in turn, the amount of interest you’ll pay. This strategy doesn’t change your APR, but it can reduce the overall cost of your loan. Check to see if your lender charges prepayment penalties that might outweigh the savings you’d receive from prepaying.
Refinance Your Loan
To actually lower your APR, you may want to look into refinancing your car loan. When you refinance, you take out a new loan (ideally with better rates or terms) and use it to pay off your old loan. If interest rates have dropped or you’ve built your credit, you may be able to qualify for a new loan with a lower rate. Shortening your loan term, on the other hand, can reduce the total amount of interest you’ll pay, even if you don’t qualify for a lower APR.
Recommended: What Should Your Average Car Payment Be?
The Takeaway
The interest and fees you pay over the life of an auto loan have a big impact on the overall cost on the vehicle. Understanding how the APR on an auto loan works can help you get a lower rate on a car loan.
If you already have a loan and you’re not happy with your rate, you might want to shop around and compare refinancing offers from multiple lenders.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
How can I lower my APR on a car loan?
You may be able to get a better annual percentage rate (APR) on a car loan by:
• Building your credit
• Making a larger down payment
• Going with a shorter loan term
• Negotiating a lower sales price
• Shopping around for a lender
• Using a cosigner
• Refinancing your loan
Can you get 0% APR on a car loan?
Yes, dealers will sometimes offer car loans with a 0% annual percentage rate (APR). These deals are designed to incentivize customers to purchase brand new cars, which generally sell at a significantly higher cost than used vehicles. To qualify for one of these promotions, you usually need to have excellent credit.
What is a good APR for a car loan?
The annual percentage rate (APR) on a car loan will vary depending on your credit score, the lender, and the terms of the loan. On average, interest rates are close to 7% for new car loans and 12% for used car loans.
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