Some financial websites regularly publish average interest rates for the various types of debts, including auto loan interest rates, to keep the public updated. Check on these averages to see if the rate quote youre getting from your bank is normal and fair considering your current credit situation.
Average Auto Rates
The national auto loan rate was 5.41 percent for a 5-year loan on a brand new car, 5.38 percent for a 4-year loan and 6.44 percent for a 3-year loan to buy a used car as of September 22, 2011 according to Bankrate. The normal rates for used car loans exceed new cars because used vehicles come with a higher risk. These are the most common loan terms but the average rates for other loan terms fall within the same range.
Credit and Other Considerations
The average rate for car loans is just an average pulled from various institutions across the country. It varies depending on your credit status and other considerations. Generally, you need a credit score of 740 or higher to get the best rates. If you have a fairly high debt-load already, even if your score meets those requirements, expect to pay higher than the normal rate. The type of car you plan to finance (and its price tag) also changes the rate.
Down Payment
You have a better chance of getting a rate quote in the normal or average range for a car loan if you give the car seller a substantial down payment on the purchase. It shows that you have the cash to contribute to the transaction. Go to the dealership with a minimum of 10 percent down to get the best quote possible.
Warning About Bad Credit Offers
Generally, a bad credit score is 600 or less. Car dealerships often advertise bad credit or no credit deals, also known as sub-prime loans, to people with this type of credit. Sub-prime rates are substantially higher than the average. Expect to pay rates as high as 20 to 30 percent. With a rate of 25 percent on a $10,000 car loan for five years youll pay $7,611, which is almost as much as the car price tag that is not normal. Instead of paying that kind of interest, scale down your car price range so that you can buy with cash or wait until your credit situations improves to apply for a loan in the future.
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