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Key Points:
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Rate hikes are pushing car loan interest rates to multi-year highs in 2024.
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The better your FICO score, the lower the annual percentage rate (APR) – but you can also get a lower rate by picking a shorter loan term.
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Rates may drop in 2024, but it isn't a sure bet.
Car loan interest rates soared over the past few years as inflation and overall interest rate hikes sent auto financing costs sky-high. And, as with all loans, your interest rate is defined by your credit score. Generally, having a good credit score lowers your interest rate and vice versa. Understanding your personal circumstances and credit score is a vital first step if you're considering a new or used car purchase.
Your credit score is a major driver of your ultimate interest rate.
A Look at Car Loan Interest Rates
Car loan interest rates are higher today than they’ve been in decades. Interest rate hikes push lending costs higher, and few collateralized loans have higher interest rates than auto loans. Since cars depreciate in value over time, compared to appreciating assets like real estate, lenders have to maximize interest rates to ensure they can protect their investment from borrower credit risk and asset impairment. This is also why used car loan rates tend to be higher than their new counterparts.
At the same time, since the risk-free rate (short-term Treasury Bills) still yields north of 5%, lenders have to exceed that lower bound to justify the loan’s value rather than simply dumping their capital into T-Bills.
Right now, average new car loan interest rates are sitting at:
- 8.51% for a 48-month loan.
- 8.15% for a 60-month loan.
- 8.67% on a 72-month loan.
Of course, as with any loan, your credit score is a major driver of your ultimate interest rate. Higher credit scores indicate less default potential. With consumer loan delinquency rates spiking, lenders are taking a closer look at credit scores to pinpoint the exact interest rate you’ll get.
Car Loan Interest Rates in 2024
There will always be a lag in interest rate data since markets move faster than analysts can aggregate data; any interest rate you find online will likely vary by a few basis points from your actual quoted rate. That's why using reliable sources to find averages is necessary. In this case, we’ll pull data from credit agency Experian’s quarterly automotive finance report to find average car loan interest rates for 2024:
*The car loan rates presented in this table are average estimates and may vary based on market conditions, lender policies, and individual creditworthiness.
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Car Loans Monthly Payment by Credit Score 2024
What does that translate to in terms of dollar cost? Here’s the average national monthly payment broken down by credit score:
*The car loan rates presented in this table are average estimates and may vary based on market conditions, lender policies, and individual creditworthiness.
How Can I Get a Better Car Loan Interest Rate?
The best way to improve your car loan interest rate is to improve your credit score. But that takes time and isn’t always easy. In the meantime, here are a few common ways to get a better car loan interest rate:
1. Increase your down payment: A higher down payment helps negotiate lower terms by reducing the lender’s overall risk.
2. Explore term lengths: Shorter terms generally offer better interest rates, though usually at the cost of a higher monthly payment. Still, if you can afford the short-term loan payments, you'll save a ton compared to lengthier financing periods.
Average New Car Loan Interest Rates
*The car loan rates presented in this table are average estimates and may vary based on market conditions, lender policies, and individual creditworthiness.
3. Get preapproved and shop around: a lender's approval guarantees an interest rate for a certain period. You can get preapproval letters from multiple creditors and use them to negotiate a better deal. Remember that preapprovals usually require a "hard pull" on your credit report, which can temporarily lower your credit score. Some lenders do not report loans to credit agencies, so it's best to avoid them.
4. Find a co-signer: If your credit score isn’t up to snuff, you can find a family member or close friend willing to co-sign the loan to improve the terms. This is a huge commitment, so be sure you both understand the implications of what you’re agreeing to!
5. Refinance: If you're already locked into a high-interest rate car loan, you can also explore refinancing options. Refinancing lets you open a new loan to pay off the old and could offer a lower interest rate if you’ve proved creditworthiness and made payments to the original lender on time.
Bottom Line
Auto loan rates tend to fluctuate, and many project rate cuts this year might push average car loan interest rates down. But that isn’t guaranteed, and you may be unable to wait around for rates to fall.
If budget is your main concern, finding a reliable used car and paying cash or offering a large down payment is the best way to reduce overall costs over time. If you’re set on a new or pricy used car, following some of the above best practices may help reduce your interest rate.
FAQ
Can I negotiate my interest rate?
Definitely. If you have multiple preapproval letters, you may be able to use one as leverage with another lender. If you’re financing through a dealership, you have even more bargaining power. Many dealerships are having trouble moving cars off the lot due to economic conditions, so they’re especially motivated to make a sale in 2024.
Why are car loan interest rates so high?
The Federal Reserve’s interest rate hikes over the past few years made all loans more expensive. Since car loans tend to be riskier, and vehicles depreciate over time, they’re almost always pricier than larger loans, like a mortgage. These factors combine to make car loan interest rates high today.
Will car loan interest rates go down in 2024?
Many analysts expect the Federal Reserve to cut interest rates in 2024, which would bring interest rates on car loans down. That isn’t guaranteed, though, so it’s best to plan for a worst-case scenario of rates staying higher for longer.
Article Topics
Auto Loans
Jeremy is a finance and investment writer who works with stock research platforms, wealth managers, and investment funds to deliver value to clients and customers. He couples his lifelong interest in financial topics with an MBA from the University of California - Davis, and loves breaking down complex topics to educate new and experienced investors alike. He lives in Austin, TX with his wife and young son.
