How to Get the Best Auto Loan Rate

Want to know how to get the best auto loan rate? Discover what factors could affect your chances of securing a prime loan.

Pen sits on top of auto loan application form, close-up imageAdobe Stock

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Buying a car can be a major investment, and getting the most value for your money is often a top priority. That's why it's important to have a clear understanding of how to get the best auto loan rate. While seeking out offers from multiple lenders plays a part in securing the best rate you can, the factors that determine your credit score play a critical role in what kind of auto loan rate you may be offered.

Learning more about these factors and working to improve your credit score could lead to substantial savings. By increasing your chances of qualifying for a prime rate — the financial industry's term for the best auto loan rates on offer — and shopping around for your best options, you're likely to get the most out of your financing.

Basic Factors That Can Impact Your Auto Loan Rate

Your auto loan rate is determined not only by your own financial situation, but also by several external factors. While most of these factors are outside of your control, it's important to understand their impact on your rate.

  • Economic outlook: Inflation, unemployment, and other key economic indicators may adjust the terms a lender can offer you, regardless of your personal financial status.
  • The Federal Reserve: The Federal Reserve is responsible for U.S. monetary policy. The decisions made by the Federal Reserve set limitations for lenders that will directly impact your rate.
  • Competitor rates: Financial institutions need to keep their interest rates at a certain level to guarantee returns, however some lenders may elect to offer lower rates to try to outpace the competition. Choice of lender is a significant factor when you consider that some lenders may offer special lower rates.

The climate and conditions of the financial market are out of your hands. However, there are a couple of factors within your control that can help potentially lower your rate.

  • Choice of lender: Lenders may offer different rates depending on the type of financial institution they are, the overall financial health of the customer, and the unique terms of the loan. Which lender you choose will ultimately determine your final rate.
  • Credit score: Your credit score is often a key determinant in what interest rate your lender will offer. The higher your score, the lower your rate and vice versa.

Current Average Auto Loan Interest Rates Can Influence Your Rate, Too

In the first quarter (Q1) of 2023, the average rate for a 72-month new-car loan from a commercial bank was 6.97%. Sixty-month new-car loan rates were even higher, sitting at 7.49%. Even finance companies are experiencing elevated interest rates, with an average rate of 6.41% in Q1 of 2023.

These figures are a helpful reference point, but keep in mind that such rates are the average, not the minimum. Your interest rate can change depending on factors that you may or may not have control over, which means you have the potential to receive a lower-than-average rate offer, or, conversely, one at higher-than-average rates.

By using these interest averages as reference, you can prepare a target budget, calculate a potential monthly car payment, and understand if you're getting a rate that seems fair to you given current market averages.

How to Increase Your Chances of Getting a Prime Rate

Receiving a prime rate will depend not only on your financial status, but also on how well you prepare before applying for your loan. Although what is considered a prime rate may shift, taking the right steps can help you improve your potential auto loan rate, even if you don't qualify for a prime rate.

  • Check your credit score. Knowing your credit score before applying will help you better predict your rate and inform your buying options. Take the time to check and evaluate your credit before applying so you can avoid unnecessary hits from a hard credit check.
  • Improve your credit. If your credit score isn't where you want it to be, take steps such as paying your accounts on time, limiting your credit utilization, and more. Boosting your credit score may take time, but it will be a long-term investment toward securing a better auto loan rate.
  • Shop around. Don't limit yourself to a single lender. Banks, credit unions, and dealerships will all have different potential benefits and drawbacks, so weigh your options. However, be careful not to wait too long to decide. Depending on the credit model used, inquiries can count against your credit score after 30 days. Multiple auto loan inquiries may be counted as a single inquiry if grouped in a 45-day period.
  • Get pre-approved. Using pre-approved auto financing helps reduce the impact on your credit score while offering valuable insight into your potential rate. Although you will have to apply for final financing through a chosen lender, pre-approval will help you better determine your best option.
  • Increase your down payment. A larger down payment doesn't have as direct an impact on your auto loan interest rate as other strategies, but it often reduces your monthly payment and overall costs. The more principal you cover upfront, the less interest you will have to pay over time. This may not be an option, depending on your budget, but even a slightly higher down payment could lead to long-term savings.
  • Wait for the right time to apply. If current rates are too high for your budget, consider waiting to see if rates go down. Rates are constantly changing, so patience may be a virtue when it comes to getting the best auto loan rate.
This site is for educational purposes only. The third parties listed are not affiliated with Capital One and are solely responsible for their opinions, products and services. Capital One does not provide, endorse or guarantee any third-party product, service, information or recommendation listed above. The information presented in this article is believed to be accurate at the time of publication, but is subject to change. The images shown are for illustration purposes only and may not be an exact representation of the product. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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Elliot Rieth
Elliot Rieth is a writer who was born and raised in Michigan, the center of the American automotive industry. With a background in the industry that spans from sales to digital marketing, Elliot has years of experience working directly with dealers and OEMs to create digital content and educate potential customers. When Elliot isn’t writing about horsepower or EVs, he can be found with his two greyhounds enjoying a new book or record.