Question from Mike: What are used car interest rates?
Hello,
Used car interest rates are the percentage of the loan amount that lenders charge you for borrowing money to buy a used car. These rates can vary widely based on several factors, including your credit score, the age of the car, and the length of the loan.
Typical Used Car Interest Rates
According to Experian’s State of the Automotive Finance Market report for Q4 2020, the average interest rate for a used car loan was 9.46%. However, this is just an average, and actual rates can range from as low as 3% to as high as 20% or more.
Factors Affecting Used Car Interest Rates
Several factors can affect the interest rate you receive on a used car loan:
- Credit Score: Lenders typically offer the best rates to borrowers with high credit scores. According to Experian, borrowers with credit scores of 781-850 received an average rate of 3.65% on used car loans, while those with scores of 300-500 received an average rate of 20.67%.
- Age of the Car: Older used cars are generally considered riskier to finance, so lenders may charge higher interest rates for these vehicles.
- Loan Term: Longer loan terms often come with higher interest rates. According to the Consumer Financial Protection Bureau, a longer loan term can also increase the total amount you pay in interest over the life of the loan.
How to Get a Lower Interest Rate
Here are some steps you can take to potentially secure a lower interest rate on a used car loan:
- Improve Your Credit Score: Paying your bills on time, reducing your debt, and checking your credit report for errors can help improve your credit score.
- Shop Around: Different lenders may offer different interest rates, so it’s a good idea to get quotes from multiple lenders before deciding on a loan.
- Consider a Shorter Loan Term: While a shorter loan term will result in higher monthly payments, it can also help you secure a lower interest rate and save money in the long run.
Remember, it’s important to understand all the terms of a loan before you agree to it. If you’re unsure about anything, don’t hesitate to ask the lender for clarification.
