How to Get the Best Auto Loan Rate

With the average car payment topping $767, according to Experian data, it’s more important than ever to find a low interest rate on your car loan or auto refinance.

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Even when rates go up, there are always steps you can take to make sure you’re getting the best loan for your situation. Here’s how to get the best rate on a car loan.

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Key takeaways

• The best way to ensure you get a low APR on your car loan is to prepare ahead of time.
• Before you shop, set your budget, improve your credit score, and save for a larger down payment.
• Compare loan offers from several lenders, including banks, credit unions, and online lenders, to find which one offers the lowest rates and fees.
• Other factors that help keep your interest rate low include choosing a shorter loan term and buying a new vehicle vs. a used one.

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Before you apply: Checklist for the best rates

Before you begin, take a look at the most important factors that affect the average auto rates and steps you can take to put yourself in the best position. Preparing ahead of time will help you to get a low-APR car loan when it’s time to start shopping for a new lender.

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How to get the best car loan for your situation

Follow the steps below to find the right loan. Take your time and shop around so that you’re as prepared as possible when it’s time to compare loan offers. 

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1. Know your budget

To get a car loan with a low interest rate, think like a lender. They want to know your financial situation is solid, and that you can afford to repay them. 

First, look at your monthly budget and decide how much you can afford to set aside for your car each month. Make sure to also leave room for the cost of fuel, maintenance, and perhaps even parking. 

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Next, look at your current debts compared to your income, known as your debt-to-income ratio (DTI). Here’s how to find it: Tally up your monthly student loan, personal loan, mortgage, child support and alimony payments, then divide that sum by your gross monthly income. A lower DTI is better in a lender’s eyes.

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Finally, consider what you can bring to the deal. A bigger down payment can help lower your rate, because you’ll need to borrow less. 

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If you’re refinancing, look at the current market value of your car compared to the remaining balance of your loan. If the car is worth less than what you owe, you’re considered “underwater” on the loan. You’ll need to look for negative equity refinancing options.

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2. Check your credit

Your credit plays a big role in getting a low APR car loan. Lenders will take a close look at your credit score. A hard credit inquiry tells them at a glance whether you tend to make your payments on time, how much credit you have available to you, and your history of paying back what you’ve borrowed. People with higher credit scores tend to receive the lowest rates.

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Check your credit by requesting a free credit report from AnnualCreditReport.com or your bank, credit union, or credit card issuer. Report any errors you see right away.

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Don’t worry if your credit score isn’t as high as you’d like. Refinancing with bad credit is an option with some lenders.

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If you can afford to wait a few months before shopping for a loan, you can also take steps to improve your credit score right away:

• Catch up on all late or missed payments.
• Set a reminder or use AutoPay to ensure every bill is paid on time.
• Pay down balances as much as you can.
• Avoid opening any new accounts before loan shopping.

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3. Shop around to compare lenders

Lender choice makes a big difference in your rate, too. If you want to get a car loan with a low interest rate, one of the best things you can do is compare loan offers from multiple lenders, including credit unions, banks, and online lenders. 

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Each lender sets its own interest rates, and they can vary widely from one to the next. Shopping around ensures you don’t miss out on a great fit.

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When you prequalify, you’ll enter some financial information, including income and desired loan amount. Then you can see your estimated monthly payment and interest rate. 

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Once you have several different loan offers, see how they compare in:

• Amount
• Term
• Interest rate
• Fees 

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4. Avoid these common mistakes

These common mistakes could prevent you from getting the best car loan. 

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• Taking the first loan offer you receive without shopping around first. 
• Focusing on monthly payment instead of vehicle purchase price and overall interest paid.
• Choosing an extra-long loan term, which can increase your rate and cost more in interest over the long term.
• Putting your credit score at risk by missing payments or applying for multiple loans or credit cards. 

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5. Finalize your loan

The final step is to pick a lender and fill out a formal loan application. Read the fine print on your loan offer and look at the APR vs. the interest rate alone. APR, or annual percentage rate, includes fees, too, giving a better view of the overall annual cost of the loan.

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Then sign your documents to finalize the loan. If you have a cosigner, they’ll sign too. Use the funds to purchase your car or pay off your old auto loan if refinancing. Update the vehicle title and the registration and you’re all set.

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Prepare for an auto loan refinance

Auto refinancing can help you get a low APR car loan, even if you’ve already bought your car. It’s worth refinancing your car when you can get a lower interest rate or better terms. Saving money on your rate can help free up cash so you can achieve other goals. 

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RefiJet’s refinance tools help you compare lenders and make informed decisions about your auto loan. Learn more with our guide to auto refinancing and use our auto refinancing calculator to see how much you could save.

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FAQs

Below are some of the most frequently asked questions about how to get the best auto loan rate.

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How do you get the best rate on a car loan?

To get the best rate, get prequalified at several different lenders to compare offers, keep your credit score as high as you can, choose a shorter loan term, and save for a larger down payment.

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What helps you qualify for a low APR car loan?

A good credit score can help you qualify for a low APR car loan, because it shows that you have been a responsible borrower in the past.

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Do shorter loan terms get lower interest rates?

Yes, shorter loan terms tend to have lower interest rates, because you’re more likely to pay off the loan in full. Longer terms have higher rates, because there’s a bigger risk something could happen that could affect your ability to repay.

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Will a larger down payment help me get a lower rate?

Yes, a larger down payment can help you get a lower interest rate. That’s because you’re borrowing less compared to the total value of the vehicle. 

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What mistakes can cause me to get a higher car loan APR?

Failing to shop around, not protecting your credit score, choosing a long loan term, or skipping a down payment can all cause you to receive a higher APR on your car loan.

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