Want a Lower Interest Rate on Your Car Loan? Try Rate Shopping

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Locking in a lower interest rate on your car loan could give your budget more wiggle room.

An auto loan can take a big bite out of your monthly budget. But if your interest rate is too high, your monthly car payment might be significantly larger than it needs to be. Drivers able to lock in a lower interest rate could save big on interest costs.

The good news is that a lower interest rate might be within reach. Let’s explore how to get a lower interest rate on a car loan.

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Can I get a Lower Interest Rate on My Car Loan?

When you have a car loan, your monthly payment is composed of two basic parts. First, the principal repayment represents the loan amount you are repaying to the lender over a loan term. The second component of your auto payment is the interest charged by the lender.

When considering an auto loan of the same term and amount, a lower interest rate translates into a lower monthly payment. In contrast, a higher interest rate leads to a higher monthly payment for borrowers.

Regardless of your financial situation, everyone can see the benefit of a lower monthly payment. Whether you use those newfound funds to make ends meet or save them for a rainy day, it’s an advantage to keep your auto payments lower.

And luckily, it is possible to get a lower interest rate on your car loan. The details of finding a lower interest rate vary a bit based on where you stand in the car buying process. Here’s a closer look at the most common scenarios.

Making your vehicle purchase

If you haven’t closed on your car purchase yet, you still have the chance to shop around for the lowest possible interest rate. Rate shopping involves comparing interest rates and loan terms across multiple lenders.

Of course, the goal of this exercise is to find a rate that meets your needs. When locking in a lower rate, you might be effectively saving yourself hundreds or thousands of dollars over the life of the loan.

When making your car purchase, you have several ways to impact the interest rate. One option is to make a bigger down payment. Essentially, this lowers the risk involved for the lender, which often translates into a lower interest rate.

Refinancing after you own the vehicle

If you’ve already finalized your vehicle purchase, refinancing presents an opportunity to lock in a lower annual percentage rate (APR). For example, you might have driven off the lot after signing up for financing offered through the dealership. Since dealerships are known to offer very high rates, you can likely find a better rate through an auto refinance. Even if you did rate shop when finalizing your auto loan, it’s possible that changes to your financial situation or market conditions may lead to lower rate options when making a switch. A refinance loan is slightly different than a new car loan. When you finalize a refinance, your original auto loan will be paid off. The result is that you’ll have a lower interest rate to contend with when making your loan payments.

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How To Get a Lower Interest Rate on a Car Loan

As a driver carrying a car payment, a lower interest rate could mean significant savings. Since everyone loves to see more flexibility in their budget, pursuing a refinance might be the right fit.

See where your credit stands

First things first, it’s time to take a quick look at your credit score. Typically, borrowers with a lower credit score will find higher interest rates than those with a higher credit score.

It’s easy to check your credit score for free. Many sites, including Experian, will give you an inside look at your credit score. Your FICO score will fall somewhere between 300 to 850. In general, a FICO score of at least 670 is considered high.

Since different lenders set their own rules, there is no specific minimum credit score across the board. With a better idea of your credit score, you can get a feel for whether you’ll find lower rates.

If your credit score hasn’t changed at all since you financed the car, that might mean less interest rate savings are on the horizon. But a lower credit score doesn’t rule out locking in a lower interest rate entirely. Ultimately, finding a better interest way might be possible for your situation.

Shop around for the best interest rates

Shopping around for the best interest rate will help you lock in the lowest possible interest rate. Otherwise, you could get stuck with an unnecessarily high interest rate.

When shopping around, you’ll want to compare loan offers across multiple banks, credit unions, and online lenders. If that sounds tedious, it doesn’t have to be. You can take advantage of our rate shopping tool to compare refinance rates across more than 150 lenders.

Run the numbers before signing on the dotted line

As you explore the loan offers, you might find very attractive interest rates. But before moving forward with a refinance, it’s critical to determine how much you’ll save over the course of the loan.

To determine whether or not refinancing is worth it, calculate how much you would save in total interest payments over the loan term. Next, subtract any of the upfront refinancing fees. For example, if you are able to save $5,000 over the course of the loan term and the upfront fees are $500, then you’d save $4,500 in interest payments.  It’s easy to do this math with the help of our free loan refinancing calculator. You’ll even have the ability to experiment with shorter loan terms.

Even if you find a loan that meets your needs with the most competitive rates on the market, sometimes, it’s not an improvement over your current loan. 

Sign up for autopay

A final way to tap into a lower interest rate on your car loan is by looking for an autopay rate discount. Some lenders will offer a better rate if you link up a bank account or credit card for automatic payments.

When you make this move, it lowers the risk of nonpayment for lenders. With that, many are willing to offer you a small discount on your interest rate.

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What is a Good Interest Rate on a Car Loan?

A good interest rate on a car loan will vary based on your financial situation and the market conditions. As of the third quarter of 2022, the average interest rate attached to a 60-month new car loan was 5.50%. For a 72-month new car loan, that average interest rate jumped to 5.61%.

Of course, borrowers with a higher credit score might find a lower interest rate. In contrast, those with a lower credit score might find higher interest rates available.

The only way to find the best interest rate to meet your needs is to compare rates across multiple lenders. Depending on your situation, you might find a better rate through a bank or online lender than you received through your car dealership.

Tips for Getting the Best Interest Rate on Car Loans: Improve Your Credit

Several factors impact the interest rates you can lock in on a refinance. While you can’t control the market conditions surrounding interest rates, it’s possible to lock in a lower rate by improving your credit score.

Since lenders consider your credit score when determining interest rates, a higher credit score often results in a lower interest rate. If you have a lower credit score, it might be worth taking some time to improve your credit score before pursuing a refinance.

A few ways to improve your credit score include making on-time payments a priority, reducing your credit utilization on credit cards, and correcting any mistakes on your credit report.

Shop Around and Consider Your Credit Score

As you explore your options for a lower interest rate on your auto loan, shopping around is a useful tool. Without shopping around, you are essentially flying blind into your refinance. If possible, take the time to review interest rate offers across multiple lenders.

If you don’t find any interest rates that suit your needs, then consider working on your credit score first. With the right credit score, doors to the lowest rates on the market could open.

About The Author


Sarah Sharkey

Sarah Sharkey is a personal finance writer who loves diving into the details to help readers make savvy financial choices. She has written for numerous finance publications, including Business Insider, Smart Asset, and Money Under 30. She lives in Florida, with her husband and dogs, and enjoys exploring a new stretch of coastline whenever she can.


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