10 Ways to Lower My Car Loan Interest Rate?

Q: What Does APR Mean?

The Annual Percentage Rate (APR) or Car Loan Interest Rate is the cost of borrowing a certain amount of money from a lender to purchase a vehicle, including fees and interest charges.

Q: Should I Pay Off My Car Loan Early?

It's absolutely possible to pay off your loan early, and we'd highly recommend you do so if you can afford to. However, check with your refinance lender if there are any additional charges or pre-payment penalties for clearing the loan early.

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Shopping for an auto loan or for auto refinancing? You’ll need a low car loan interest rate for the best results – here’s how to find it!

One of the most important things that determine how much money you pay on your car loan is the interest rate or APR. There are a lot of complex calculations that go into finalizing every individual’s interest rate. However, that does not mean you cannot influence it and ensure you get a low APR – because who wants to lose money on high car payments, right?

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All you need is to do a few things right – the best APR for you is hidden in plain sight! In this post, we’ll break down everything you can do to improve your financial awareness and lower your car loan APR.

What you'll read about

What does APR mean?

The Annual Percentage Rate (APR) or Car Loan Interest Rate is the cost of borrowing a certain amount of money from a lender to purchase a vehicle, including fees and interest charges.

When you approach a lender for a car loan, the actual amount you need is called the Principal. In return for loaning you the money, you need to pay the lender a certain interest charge on the principal every month. The amount of interest is based on the APR, which reflects your monthly payments more accurately.

How is my APR decided?

The APR on your car loan is decided by taking into account several factors like:

Credit score: Typically, a score above 660 is considered good. Lower scores will result in higher APRs – some as high as 20-30%.
Payment history: If you have a history of erratic payments and financial irregularities, lenders may consider you a risk, and APRs could increase.
Loan amount: You may not be loaning the entire cost price of the vehicle. Making a downpayment on the loan or trading in your old vehicle can reduce the amount you may need to borrow.
Loan-to-value ratio: It is the amount of the loan you’re hoping to borrow divided by the value of the car.
Loan term: You could choose a longer loan term to bring down the APR, but you may pay more in interest charges.
Other fees: The cost of origination fees and processing fees are included in the APR.

Using our auto loan calculator, you can also easily check what car loan interest rate will give you affordable monthly payments.

What is a good interest rate?

There is no such thing as a common good interest rate. Your loan’s interest rate varies depending on your credit score and the amount of money you borrow. But still, on average:

With a credit score between 740 and 800, the interest rate will be 3.2%.
With a credit score between 680 and 739, the interest rate will be 4.5%.
A credit score of 680 or less will get an interest rate between 6.5% and 12.9%.

What APR is too high for a car?

The interest rate you pay on your refinance car loan depends on your credit score, payment history, and many other factors. Nevertheless, there’s are an average APR that is optimal for each credit score – check them out in the table below.

Credit Score	New Car Loan APR	Used Car Loan APR	Refinance Car Loan APR
750 or higher	6.33%	6.58%	3.38%
700-749	10.64%	10.89%	4.32%
600-699	14.27%	14.52%	6.74%
451-599	17.52%	17.77%	9.39%
450 or lower	Not Applicable (N/A)	N/A	N/A

*As of February 2022

How to lower your car loan interest rate

Who doesn’t want to save on monthly payments by snagging a low APR? Follow these guidelines before and during the loan or refinance process to get the lowest APR possible for you.

1. Maintain a good credit score

Keep track of your credit score regularly and clear any outstanding dues you may have. If you have plans to take out a loan soon, ensure you have a consistent payment history for at least 6 months. This will help you increase your credit score by a few points, reducing your APR to a more favorable one. Most credit bureaus offer a free credit report once every year.

2. Apply for auto refinancing

If you’ve already taken out an auto loan and want to reduce the existing APR, you can refinance the loan to a lower APR, a longer term, or both. Having a good credit score will help you get an APR a few points lower, saving you a few hundred dollars a year.

3. Shop around and compare auto refinance rates

The best way to find low rates and flexible lenders is to use online auto loan and refinance aggregators like Way.com. They help you compare different APRs, their term lengths, and conditions. You can even first use an online auto loan refinance calculator to check how much you can save before shopping around for the real thing!

4. Apply with a co-borrower or add a co-signer

If your credit score is not good enough to merit a low APR, you can always strengthen your application by having a creditworthy co-borrower. Since the risk is spread between you and the co-borrower, lenders will be more inclined to give you lower APRs. The co-borrower will be responsible for making any missed payments or paying back the loan if you fail to do so.

Lower your car loan interest rate with Way.com

5. Negotiate the APR with the lender

If you feel that you haven’t been offered a fair rate, you can try and negotiate the APR with the lender. Some lenders do entertain negotiations from customers, but mostly from those with moderate-to-excellent credit. If you have poor credit, this may not be that useful.

6. Think about shorter loan terms

If you’re very concerned about high car loan interest rates, you can try choosing a shorter loan term (ideally between 24-36 months). However, if you’re choosing this option, be prepared to pay a higher monthly payment.

7. Make a large down payment

The more you borrow, the more a lender will lose if you don’t pay back what you owe. By putting down more money or trading in a car, you’ll not only be able to borrow less, but you might also get a lower interest rate.

8. Make additional payments

When you pay more than the minimum on your car payment, you pay off your loan faster and pay less interest overall. Here are some ways that you can pay more on your car loan.

Use any extra money you can get. Direct windfalls like a tax refund, a bonus at work, or even a backdated pay raise can be put toward your car loan.
Pay for your car in even amounts. Rounding up your car payment to the next $50 is a great way to save money on interest because it helps you pay off your balance more efficiently.
Make biweekly payments. You can also save more on interest and pay off your existing car loan faster if you pay every two weeks instead of every month.

9. Decline options you don’t need

While financing a car, the sales team will usually offer you several dealer options, upgrades, and extras that can make your loan much bigger. Here are some of these choices:

Prolonged guarantees
Guaranteed protection for assets, aka GAP insurance
Contracts for service
VIN engraving
Rustproofing
Protection for the fabric and paint
Guarantees for tires and wheels

Before you agree to any of these options, ensure you fully understand what you’re getting. The extra costs can raise your total loan amount and interest rates.

10. Pay on time every time

If you’re behind on any of your credit account payments, get caught up as soon as possible. Then, make sure you pay on time every month from then on.

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FAQs on car loan interest rate

Can I lower my current car interest rate without refinancing?

Unfortunately, there is no easy way to lower your current car loan APR without refinancing. The only other way you can do so is by either renegotiating your loan or paying off your loan. Both of these options have very low chances of success because it depends on the lender’s outlook. It might be hard to negotiate a car loan with the dealer because he might already have sold it to another financial investor. Paying off your loan is also very expensive if you don’t have the required amount ready.

Should I pay off my car loan early?

It’s possible to pay off your loan early, and we’d highly recommend you do so if you can afford it. However, check with your refinance lender if there are any additional charges or pre-payment penalties for clearing the loan early.

Is a 3% interest rate good for a car?

Yes, it is. A good interest rate for a car is anything at or below 3%. Depending on your credit score, the interest rate on a good car loan can be anywhere from 3% to almost 14%. And if your mortgage rate is low, you can save more money over the course of the loan.

Can I negotiate a lower interest rate on my car loan?

Yes, certainly. The interest rate can be negotiable, just like the price of the car. The dealer’s rate for the loan may not be the best rate you can get. With dealer-arranged financing, the dealer gets your information and sends it to one or more potential auto lenders.

Is 4% a good interest rate for a car?

Yes, 4% is a good rate for a car loan. The interest rates a lender will give you depend on your credit score. The lower your rate will be, the better your credit. When the rate is lower, you won’t have to pay as much interest to the lender.

Can you get a 0% interest rate on a car?

Most lenders don’t offer 0% APR, which is too bad. These discounts are usually offered by the company that makes the car and will only apply to certain cars. Most of the time, you can only get a loan with 0% APR for a new car, but sometimes you can get one for a certified pre-owned car.

How can I lower my car loan interest rate with Way.com?
Aren’t you just tired of hopping from place to place, searching for the best loans and rates? If you’d rather just go online and shop around for the best auto refinance loans in a few clicks, Way.com can help you do that.
Harness the real power of real-time price monitoring with the Way.com Auto Super App. This app helps you find a parking spot, get quotes for auto insurance and refinancing, find the cheapest car wash and EV chargers near you, and get cash back on gas. Way.com can take care of everything you need for your car.