Auto Loan Rates & Financing in July 2024 | Bankrate (2024)

A beginner’s guide to auto loans

Before exploring the right auto loan for your needs, it’s important to understand the ins and outs of the financing option and where to secure them.

What are car loans and how do they work?

Auto loans let you borrow the money you need to purchase a car. Since car loans are typically "secured,” they require you to use the automobile you are buying as collateral for the loan. You are typically asked to pay a fixed interest rate and monthly payment for 24 to 84 months, at which point your car will be paid off. Many dealerships offer financing, but you can also find auto loans at national banks, local credit unions and online lenders.

When shopping for an auto loan, compare APRs across multiple lenders to make sure you are getting a competitive rate. Look for lenders that keep fees to a minimum and offer repayment terms that fit your needs.

Loan details presented here are current as of publication. Check the lenders’ websites for more current information. The auto loan lenders listed here are selected based on factors such as APR, loan amounts, fees, credit requirements and more.

Types of auto loans

Car loan options go beyond just new and used. Each auto loan type has specific uses that cater to certain types of borrowers, and knowing what type you need can make the loan shopping process easier.

New car loan

If you are looking to purchase a new car, you should seek out a new car loan. Dealerships offer new car financing on the lot, but you can also get them from banks, credit unions and online lenders. Shop around for your best interest rate and terms.

Used car loan

Buying a used car from a dealership will require a used car loan. You can get them at the same places you would get a new car loan. Lenders often limit cars’ age and mileage.

Auto refinance

If you originally took out a loan at a dealership, or just didn't get a good rate, you may want to refinance your car and get a better interest rate. Or you can rework your terms to get a lower monthly payment. This process simply replaces your current auto with a new one. These loans aren't available through dealerships.

Cash-out auto refinance

To get a little extra cash with your refinance, you can take out a cash-out refinance loan. Along with the balance you are refinancing, you can borrow against the equity you have in your car.

Private party

When you are buying a used car from an individual seller and do not have the cash on hand, you will need a private party auto loan. These are less common, but available at some banks, credit unions and online lenders.

Lease buyout

Leasing a car can come with the option to buy the vehicle at the end. You can take out a lease buyout loan to finance that purchase. Lease buyout loans tend to be similar to used car loan rates.

Pros and cons of auto loans

An auto loan can be a great way to get behind the wheel. But cars are big purchases, and these loans can impact your finances for years. It’s important to weigh auto loans’ advantages and disadvantages before opting in.

How to choose the best auto loan lender

Choosing the right lender can help you with financing a vehicle you can afford. We recommend you get quotes from at least three lenders beyond your car dealership before deciding which is right for you. Pay special attention to the following factors:

Approval requirements

Every lender has different requirements to receive approval. Lenders will consider aspects like your credit history, income and debt-to-income ratio. Your credit serves as the primary determinant of potential rates. Keep in mind that typically, the worse your credit score is, the less competitive your rates will be.

Annual percentage rate

The APR represents the amount of interest and fees that you will have to pay on the loan. Pay close attention to this number — a higher APR means more interest and thus a larger monthly cost. Also remember to shop the total loan amount, not just the monthly payment.

Loan terms

While a lower monthly payment may seem appealing, pay close attention to available terms, and consider how your loan’s length will impact your overall cost. A longer loan term will lower your monthly cost, but you will pay more interest. Conversely, a shorter loan term means a higher monthly cost but a lower cost over the life of the loan.

Current car loan interest rates

Car loan interest rates change frequently and impact how much you’re going to pay each month. So it’s important to track them when comparing auto loan rates. Bankrate surveys top banks across U.S. markets and crunches the numbers to find average interest rates for common loan terms. Use the below table, which updates weekly, to help you know the best time to buy a used or new car.

What factors contribute to auto loan interest rates?

While it is true that the interest rate you will receive varies depending on the lender and is somewhat out of your control, there are still choices you can make to increase approval. Consider these aspects and how they will affect loan approval and rates:

• Your credit history: Lenders use credit scores to measure the risk that borrowers carry. Very simply, the lower your credit score is, the higher your interest rate will be.
• Vehicle down payment: Putting down a large down payment will not only bode well with lenders but will decrease the amount you are borrowing — saving you more money down the line.
• Loan term: Typically, a longer-term loan will equate to higher interest rates and more interest paid over the life of the loan. But a longer-term loan will decrease your monthly payment.
• Education and work history: Many lenders are expanding underwriting criteria outside of the sole measure of your credit score. This means you can still benefit from a competitive rate if you have a strong profession or educational background — with or without a perfect credit score.
• Vehicle age: An older vehicle can carry additional risk of issues for both you and your lender. So, you can expect an older car to carry higher rates.

How to calculate auto loan interest

It’s smart to determine your expected monthly payment prior to signing off on your next loan. Not only will it put you in control of your finances, but it can ensure that you don’t end up paying more interest than you should. Use our tool below to determine how different interest rates will impact your monthly payment.

Auto loan rates by credit score

As mentioned, lenders use credit score as the primary determinant of a potential borrower's ability to pay off a loan. So, the better your credit score is, the more competitive interest rates you will receive. Below are the average APRs for new and used vehicles in the first quarter of 2024, according to Experian.

What to know before applying for an auto loan

How to apply for an auto loan

To get the auto loan that’s right for your situation, follow these steps:

1. Determine your auto loan budget.

The first step is to understand what you can truly afford. Consider your current finances along with loan and vehicle upkeep costs to find this number.

2. Check your credit report

The better your credit score is, the more competitive your rates will likely be. Use your credit score to guide which lenders make the most sense to apply to — based on lender requirements.

3. Apply for auto loan preapproval

With auto loan preapproval you can lock in a rate before shopping for your car. This extended period allows you time to compare vehicle options and help with negotiating at the dealership.

4. Shop for your car

Make use of online reviews found on sites like Kelley Blue Book or Edmunds to confirm the vehicle meets your needs along with any lender restrictions.

5. Compare dealership offers

While dealership loan rates tend to be slightly higher than other options it is smart to compare, especially if you have a preapproved option to use as leverage.

6. Finalize the auto loan

At this point, you’ll need documents like proof of insurance and a vehicle title to seal the deal.

7. Start making payments

Keeping up with your monthly payments is vital in making sure the vehicle becomes yours and ensuring your credit comes out unscathed. Consider signing up for autopay so you never miss a payment.

How to manage a car loan

The key to managing your car loan is sticking to a budget and understanding how your agreed-upon payment timeline impacts it. Otherwise, you put yourself at risk of losing your vehicle and running into trouble. If you are on the brink of missing a payment, reach out to your lender as soon as possible to seek a solution.

You can make extra payments to pay off your loan earlier to save on interest. But consider how early payoff can impact your credit — it can drop your score by a few points. Not all lenders allow early loan payoff. Approach your auto loan pay-off with care to ensure it fits best with your financial situation.

FAQs about auto loans