The difference between a good and a bad interest rate on a car loan can cost you thousands of dollars on the exact same car. Most people accept whatever the dealership offers without knowing if it’s fair. Here’s what you should actually be paying.
What counts as a good rate by credit score
- Excellent credit (720+): 5–7% — the range you want
- Good credit (660–719): 7–10%
- Fair credit (600–659): 10–15%
- Poor credit (below 600): 15–25% or higher
Used car loans typically run 1–3% higher than new car loans.
Why the dealership rate is rarely the best rate
When you finance through a dealership, they often act as a middleman — getting you approved at 6% from a lender but quoting you 9%, keeping the difference. On a $25,000 loan over 60 months, that gap is about $2,000 in extra interest you didn’t have to pay.
How to get a better rate
- Get pre-approved before visiting a dealership. Check your bank, credit union, and online lenders like LightStream or PenFed. A pre-approval gives you a real number to compare against.
- Credit unions almost always beat banks. They’re member-owned and consistently offer lower auto loan rates.
- Shorter loan terms get better rates. A 36-month loan has a lower rate than a 72-month loan — and costs much less overall even though monthly payments are higher.
The number that actually matters
Focus on total interest paid over the life of the loan — not the monthly payment. A $25,000 car at 8% for 72 months costs you $32,000 total. At 5% for 48 months it costs $27,600. Same car, $4,400 difference — just from the loan terms.