Your Credit Score and Auto Loan Interest Rates

Auto loans are no exception to the rule that having a higher credit score makes borrowing less expensive.  In fact, an average borrower with a credit score below 500 will typically pay 10% more to borrow than those with the highest scores.

 

Auto loan interest rates, or APR, can vary on the term length of the loan, age of the car being financed and other considerations however the biggest factor is your credit score.  Before you start shopping for a car, you’ll want to check your credit score. If your credit score is low than waiting to buy while you work on improving your credit could save you a lot of money.

 

For example, here are the average interest rates for each credit score for the same (new car) $15,000, 48-month auto loan:
 

 

Credit Score Category
Average Loan APR
Monthly Payment 
Deep Subprime (300 to 500) 
14.25%
$412
Subprime (501 to 600)
11.51%
$391
Non-prime (601 to 660)
7.55%
$363
Prime (661 to 780)
4.75%
$344
Super Prime (781 to 850)
3.82%
$337
 

 

A person with a credit score above 781 would pay $337 per month while someone with a score between 300-500 would pay $412.

 

When shopping around for a car you also want to be shopping for a car loan. Get pre-approvals from several lenders and compare them to find the best offer for you.

 

 
If you currently have a low score and have time to delay your car purchase, work on improving your credit.  Which means:

 

  • Paying every bill on time, every time
  • Keeping credit card balances low relative to credit limits
  • Avoid applying for other credit within 6 months of applying for a car loan
  • Keeping old credit cards open unless there’s a compelling reason to close them
If you have any questions, reply to this email as we are here to help!

 

-Erik Kaplan