How to Get the Best Car Interest Rates

Woman talking to salesperson in a Car Dealership

 Hero Images / Getty Images

If you are like many prospective car buyers, you will need to take out a car loan in order to make the purchase of a new car. There are many considerations to think about when you’re figuring out how much car you can afford and how much your loan will cost you in the short and long term.

But there’s one often-overlooked factor that can make a big difference: your auto loan’s interest rate.

The chart below shows the average 60-month auto loan rates by credit score

Getting the best interest rate possible on a car loan can save you hundreds—if not thousands—of dollars on the total cost of your vehicle over the long run. While it may not always be possible to get the interest rates that you see advertised on TV, it is still possible to secure a good interest rate if you put in some preparation ahead of time.

Here, you can learn what it takes to get the best interest rate on your next big car purchase.

Buy a New Car

While a new car will have a higher price tag, the newer the vehicle you purchase, the better the interest rate that you will be offered. Dealers reserve their best interest rates for brand new cars so that even with the higher purchase price, you could still save money over the life of the loan. Some dealers may even offer interest-free loans, and they are only offered on new vehicles. However, these are not common.

There are a number of reasons why financing a new car will offer a lower interest rate. The main one is that, should you stop repaying the loan and default, the dealer has a better idea of the likely depreciation of the vehicle and the resale value. This reduces risk and liability.

Another reason is that the companies who lend on new cars are often owned by the car manufacturers, and so they are able to offer lower rates as an incentive. For the buyer, a new car also comes with the added benefit of a manufacturer’s warranty and a lower chance of mechanical failure.

Maintain a Good Credit Score

Nothing has a greater impact on the interest rates available to you than your credit rating. Your credit rating provides lenders with a history of your financial reliability. If you appear to be unreliable, you will be considered a higher risk, and this will be reflected in the interest rate you will be offered. 

Ensuring that you have a good credit rating is simple—pay your bills on time, don’t take on too much debt, and don’t open new credit accounts often. While any late or missing payments will affect your credit rating, missing repayments on credit cards, personal loans, car loans, or mortgages will have the biggest impact. Even a single late payment can cause your credit score to drop

The amount of credit you have outstanding can also affect your credit rating. If you have a lot of debt, even if your payments are current, this will lower your score. Similarly, having a lot of available credit, for example on multiple credit cards, even if they are not being used, can have a negative effect.

Lenders will consider that you might decide to have a spending spree that could leave you with high repayments, meaning that you can’t repay your loan. It is better to have just a few credit cards, preferably not maxed out, than a large number.

Sometimes, no matter how reliable you are, the companies you owe money to make a mistake. They may send incorrect information to the credit reference agencies, which can impact your credit score. For this reason, regular monitoring of your credit report is important.


Through, you can request a free copy of your information from each of the three credit reporting agencies (Equifax, Experian, and TransUnion) once a year. If there are mistakes on your report, you can take action to have these corrected. 

Get a Co-Signer

While having a co-signer does not guarantee a lower interest rate on your car loan, it can help. Some lenders will only consider applications with a co-signer, meaning that you will not qualify for the loan without one. This is because the co-signer becomes responsible for the loan should you default, meaning that the lender is more likely to recover their money. 

For this reason, while the lender will calculate the interest rate of the car loan based on your credit rating, a co-signer will need to meet certain requirements. This includes both credit score and income, which they will need to prove. 

Shop Around

While the rates the dealer offers may seem attractive, do your research before you sign a contract. A number of organizations offer loans, including banks, credit unions, finance companies, and online lenders. All will assess your credit-worthiness using slightly different criteria, so they will offer different rates. Some banks and credit unions offer better rates to existing customers to reward their loyalty. 

Before speaking to a dealership about finance, get a pre-approved loan. Having an offer does not mean that you are committed to borrowing from that particular organization. It does, however, provide a strong indication of how much money you will be able to borrow to fund your car purchase, and it provides you with leverage when it comes to finalizing a deal.


As dealers often have some discretion when it comes ​to agreeing to a deal, having a firm loan offer will make your negotiating position much stronger.

While none of these steps will guarantee you a low interest rate, using them in combination will help you to secure the best possible interest rate. It just takes a little time and planning so that you are in the strongest possible position to negotiate a great rate.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fair Isaac Corporation. "What's In My FICO Scores?" Accessed Feb. 15, 2021.

  2. Consumer Financial Protection Bureau. "How Do I Get a Copy of My Credit Reports?" Accessed Feb. 15, 2021.

Related Articles