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When shopping for a car loan, you have plenty of options — and finding the best deal matters. One key factor to consider is the annual percentage rate (APR). The APR on a car loan represents the total cost of borrowing, combining the interest rate with lender fees. This rate gives you a clearer picture of what you'll actually pay.
Understanding APR helps you easily compare loan offers so you can choose the most affordable option when buying a new car or refinancing your current car.
APR gives you the full annualized cost of a loan — meaning it spreads the total interest and fees evenly over each year of the loan. Interest rates only tell you how much you’ll pay per year in interest.
For example, let’s say you take out a five-year, $30,000 car loan with a 12% interest rate and a 3% origination fee. The APR would be 13.31% — higher than the 12% interest rate because it includes the origination fee. In short:
APR = Interest Rate + Fees (annualized)
When comparing APRs vs. interest rates, an APR gives a broader measure of total borrowing costs.
Note: Under the federal Truth in Lending Act (TILA), lenders must disclose the interest rate and APR on any loan they offer.
A good APR on a car loan is one that beats the average for your situation in the current market. But what’s average? According to the latest State of the Automotive Finance Market report from Experian, it’s as follows:
However, average APRs vary greatly depending on your credit class. For example, an 11% APR would be relatively good for a subprime borrower (someone with poor or limited credit history) buying a new car. It would be on the high side for someone buying a new car with near-prime (fair or average credit) or better credit. For reference, the following chart breaks down current average APRs by credit risk class and vehicle type.
Car loan lenders consider several factors when setting APRs, including your credit, loan term and down payment amount.
When you apply for a car loan, lenders check your credit to assess the likelihood that you’ll default (fail to repay the loan as agreed). The higher your credit score, the less risk you pose — and the lower your APR and costs will likely be. But how big of an impact can your credit have?
It can be sizeable. For example, here’s a look at how borrowing costs can vary on a $26,500, five-year car loan for a subprime vs. a super-prime borrower. Using the average APRs provided by Experian, the super prime borrower would pay $160 less per month and save almost $10,000 over the life of the loan.
*Loan amount and term are held constant to illustrate the impact of different APRs clearly.
The loan term you choose can significantly impact your APR and total loan costs. Longer terms may lower your monthly payments, but they extend repayment — resulting in higher total interest paid over the life of the loan. Additionally, lenders often view longer loan terms as riskier because there's more time for potential default or the vehicle to lose value, causing them to charge higher APRs. Choosing a shorter term could help you secure a lower APR and reduce overall borrowing costs.
Down payments can help lower your APR for two key reasons. First, they reduce the amount you need to finance, which may qualify you for a better rate. Second, a larger down payment increases your equity in the vehicle, improving your loan-to-value (LTV) ratio — the percentage of the car's value you're borrowing. A lower LTV reduces risk for the lender, making them more likely to offer you a better APR.
Car loan lenders each have their own methods for evaluating borrowers and structuring loan offers, so it’s important to shop around to find a competitive deal. As you compare options, note the APRs of each loan offer along with the monthly payment amounts, terms and overall costs. Together, this information will provide what you need to find the best loan for your needs and preferences.
Let’s look at an example:
Imagine you want to finance a new 2025 Audi A3 Premium Plus which costs $45,000. With $5,000 down and a prime credit score of 700, you get the following quotes:
If your primary goal is to save the most money, and a $773.31 monthly payment fits your budget, quote three would be the winner. However, if you want the lowest possible monthly payment and don’t mind paying $4,097.13 more to save $71.98 per month, you’d want to go with quote two. Quote one wouldn’t be advantageous in either case.
Creating a chart like this will make it easy to weigh the pros and cons and find the best fit based on your preferences.
What if you already have a car loan but think you may qualify for a lower APR and monthly payment? You’re not alone. Many people end up overpaying for vehicles due to market rates dropping, not shopping around initially, improving their credit scores or paying down their loans. No matter the case, refinancing may help you find a better deal. If you’re unsure where to start, RefiJet enables you to check rates with a network of top lenders without hurting your credit score.
Still have questions? Read on to learn more about APRs and auto loans.
Yes, while the APR and interest rate on a car loan go hand in hand, they differ. The APR tells you the total cost of a car loan, including interest and fees, while the interest rate only tells you the interest costs.
Yes, credit scores have a big impact on the APRs you’re offered. Lenders use them to assess how risky you are as a borrower. The higher your credit scores, the lower the risk and the more likely you are to qualify for better rates.
No, longer car loans tend to come with higher APRs. Lenders generally see them as higher risk because the longer term creates a larger window for borrowers to miss payments.
A zero-percent APR offer can be worth it, but they can be hard to find and get. These deals are typically only offered to buyers with excellent credit. If you’re offered one, it may save you thousands in interest, but be sure to review the fine print for hidden costs and evaluate if the vehicle sale price is competitive.
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