The average finance rates for used car loans can vary depending on your credit score, geographic location and price you are paying for the car. Interest rates also vary among lenders. Although several factors can affect car finance rates, it pays to shop different lenders when looking for the best auto loan deal.
Credit Standing
Borrowers with high credit scores qualify for the best financing rates. A high credit score makes you less of a risk to the lender. For that reason, a score of 720 or better will get you the lowest interest rate on a car loan. A healthy credit score can give you more negotiating power with the dealership, especially if you apply for dealer financing. Even with good credit most auto dealers will offer you an interest rate higher than what a bank would offer you. However, the lower the interest rate you pay on the loan, the lower your monthly car payments will be.
Interest Rates
Generally, banks and other lending institutions offer borrowers a rate of interest on auto loans for used vehicles that averages around 7 percent at the time of publication, according to CarsDirect. Depending on your credit score, you may be able to lock in a lower fixed rate. Although credit unions issue fewer than 20 percent of all auto loans nationwide, they usually offer lower rates than banks. In 2009 the average credit union interest rate for a used car loan was 5.4 percent compared to 6.9 percent offered by banks, reports the National Credit Union Administration.
Getting a Lower Interest Rate
There are ways you can get a lower interest rate when you finance the purchase of a used car. Consider the price of the vehicle. The lower the price tag on the car, the lower the rate of interest you will pay. If you finance the loan for a shorter term, a lender will usually offer you a lower interest rate. Your monthly payments will be higher, but you will be paying back less in interest. Other factors that can get you a lower interest rate include making a down payment of 25 percent or more of the total amount of the loan and showing that you have cash reserves set aside in the bank.
Finding the Cheapest Deal
When it comes down to it, buying a used car might not necessarily save you the most money. Downturns in the economy can drive up the prices of used cars. In some cases, a new car may not be that much more expensive than a used model that is already two or three years old. Dealers are offering lower financing rates for new models, sometimes even to people with lower credit scores.
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