Auto Loan Rates and Financing for 2025

Auto Loan Interest Rate Trends

New car loan interest rates are generally lower than used car loan rates, and there are a couple of reasons for that.

First, used cars are more likely to have mechanical problems, which is riskier not only for you but also for the lender. Second, new car buyers tend to have higher credit scores, which gives them access to better interest rates.

That said, interest rates for both new and used car loans have been elevated over the past few years. While they've fallen slightly from their peak in late 2023 and early 2024, they're still higher than they were a few years ago.

The good news is those rates may continue to decline through the rest of the year. When setting their rates, many auto lenders use the Wall Street Journal prime rate as a benchmark. The prime rate, in turn, is directly influenced by the federal funds rate, which the Federal Reserve is expected to cut twice in 2025.

These are just projections, of course, which may change based on various economic factors.

Average Auto Loan Rates by Year

Current Car Loan Interest Rates by Credit Score

Your personal auto loan interest rate is determined based on several factors, one of which is your credit score. Auto lenders take a look at your credit score to better understand your overall credit health and get a good idea of how risky you are as a borrower.

Car buyers with lower credit scores are statistically more likely to miss payments or default altogether. As a result, they tend to be subject to higher interest rates to compensate for the risk.

Having good credit isn't a surefire way to score a low interest rate, of course, but it'll give you a better chance. That's especially true if other aspects of your application look good. Here's a quick look at the average car loan interest rate by credit score:

Source: Experian data as of Q4 2024; scores calculated using VantageScore 4.0

Auto Loan Financing Trends

A variety of financial institutions offer car loans. However, your options may vary depending on your creditworthiness and the type of vehicle you're buying. Here's what you need to know about the most common types of lenders.

Captive Finance Lenders

Captive lenders are the financing arms of auto manufacturers that offer loans for their vehicles. You may be able to get a loan from a captive lender if you're buying a new vehicle or a certified pre-owned car from a franchise dealer.

Captive finance companies may offer lower interest rates and other incentives that can help you save money. However, some offers may have shorter repayment terms, which may translate to a higher monthly payment.

Finance Companies

Finance companies are generally non-bank lenders that specialize in auto loans but may not offer other financial products and services.

In some cases, finance companies may be willing to work with borrowers with lower credit scores. They may also offer lower interest rates than other lenders, especially if they're online companies with low overhead costs.

Banks

Many banks offer auto loans along with other financial products and services. In some cases, a bank may even offer lower interest rates to loyal customers.

Overall, however, banks may charge higher interest rates than credit unions and other lenders.

Credit Unions

As not-for-profit organizations, credit unions often provide their members with lower interest rates compared to banks. However, you must qualify as a member before you can borrow money.

Many credit unions have geographic-based requirements, which likely won't be a problem with local institutions. However, it can be an extra hurdle for some car buyers.

Buy Here, Pay Here Dealers

With buy here, pay here (BHPH) financing, you're borrowing directly from the dealer rather than a traditional auto lender. This option may be attractive to borrowers with low credit scores or no credit at all, often because the dealer doesn't run a credit check.

However, you can often expect to pay a higher interest rate compared to other types of lenders. What's more, while BHPH loans are often marketed as a way to rebuild your credit, many dealers don't report on-time payments to the credit bureaus—though they may report late payments.

Total Market Share of Financing Sources

Additional Trends

Here are some other statistics and trends for new and used car loans:

Source: Experian data as of Q4 2024

Source: Experian data as of Q4 2024

Source: Experian data as of Q4 2024

Financing vs. Leasing

If you're planning to get a new car, you may have the option to buy or lease the vehicle. Leasing has grown more popular recently, but financing remains far more prevalent.

In Q4 2024, 24.49% of new vehicles were leased. That's an increase from 22.61% during the same period in 2023 and 17.22% in 2022.

One reason why leasing is growing in popularity may be the appeal of lower monthly payments. Because you aren't buying the vehicle, you're effectively paying for its depreciation over the life of the lease rather than the car's full value.

According to Experian data, the average lease payment is $600, while the average payment for a new car loan is $742.

Electric vehicles are among the most popular among lessees, with three out of the top 10 leased models: Tesla Model 3, Tesla Model Y and Honda Prologue.

Auto Loan Financing Guide

If you're thinking about financing a vehicle purchase, it's important to understand your options, what affects your monthly payment and how to maximize your savings.

Types of Auto Loans

There are a handful of different types of auto loans. Here's what to know about each one and what to consider:

• New car loan: You can use a new car loan to buy a new vehicle. This loan option typically offers lower interest rates than used car loans.
• Used car loan: You'll use a used car loan to finance the purchase of a used vehicle. Interest rates are generally higher compared to new car loans.
• Refinance loan: If you have an existing car loan, an auto refinance loan may allow you to secure a lower interest rate, extend your repayment term or even access some of your vehicle's equity.
• Lease buyout loan: If you've reached the end of a lease on a vehicle, you can use a lease buyout loan to purchase the vehicle rather than returning it to the dealer.

How to Choose a Lender

Your first decision will be to decide between going through a dealer and applying directly with a lender on your own.

Dealer-arranged financing can be convenient, and a dealer may be able to help you get a good deal by sending your credit application to multiple lenders. However, the interest rate may be slightly higher due to additional interest designed to compensate the dealer.

Getting a car loan on your own is often more time-consuming, but it may help you qualify for better terms. What's more, having a preapproval letter at the dealership could help you with negotiations because you have a fixed budget.

It's generally best to get preapproved with at least a few lenders to evaluate your offers. Here's what to evaluate as you shop around:

• Interest rates: Make sure you're comparing annual percentage rates (APRs), which account for all relevant costs associated with the loan. If you prefer a particular lender but they don't offer the best rate, consider asking if they'd be willing to match your top offer.
• Repayment terms: Your repayment term helps determine your monthly payment and the total interest you'll pay. While longer repayment terms may result in lower payments, pay attention to the total interest charges.
• Fees: Some auto lenders may charge a prepayment penalty if you pay off the loan early. This fee can be as much as 2% of your outstanding loan balance. You'll also want to compare late fees and other potential charges.
• Customer satisfaction: Check online reviews to get a feel for the lender's quality of customer support. You can also look for complaints to see how the lender handles aspects of the borrower experience that are important to you.

What Affects Your Monthly Payment Amount?

Several factors go into determining what you'll pay toward your auto loan each month. Here's a breakdown of each:

• Sales price: The more expensive the vehicle, the more you'll need to borrow to finance the purchase. This may also include other costs, such as dealer add-ons, sales tax and various dealer and government fees.
• Down payment: A down payment directly reduces how much you need to borrow. In some cases, making a larger down payment may even help you qualify for a lower interest rate. Depending on your situation, you may opt to use your savings or a trade-in as your down payment.
• Interest rate: Your interest rate will be based on market conditions and your creditworthiness. More specifically, the lender will look at your credit score and history, income and employment, your debt-to-income ratio, the desired loan amount and the vehicle itself to set your rate.
• Repayment term: Auto loan terms usually range from 24 to 84 months. Shorter terms can help minimize your interest costs—even with a higher interest rate—but you'll want to make sure you can comfortably afford the higher monthly payment.

Car payment calculator

How to Get a Better Car Loan Rate

Car loan rates are generally lower compared to other consumer loans because they're secured by the vehicle you're buying. However, it's still a good idea to take steps to qualify for as low a rate as possible. Here's what you can do:

• Improve your credit. Your credit score is one of the most important factors lenders consider when setting your rate. Start by getting access to your Experian credit report and FICO^® Score^☉ for free. Then, evaluate your report to identify where you can make improvements.
• Pay down debt. You can reduce your debt-to-income ratio by paying off credit cards and low loan balances to remove those payments from your budget.
• Put more down. If you can afford to, consider putting more money down to qualify for a better rate and lower payment. Just make sure you don't sacrifice other important financial goals or leave yourself vulnerable to potential financial emergencies.
• Buy a less expensive vehicle. Remember, the less you borrow, the less risk you pose to the lender. Choosing a cheaper model may help you secure better financing terms.
• Opt for a shorter term. Shorter repayment terms often translate to lower interest rates because they're less risky for lenders.
• Get a cosigner. If your credit is in poor shape, asking a loved one with good credit to cosign your application can help you secure better terms than what you'd get on your own. Just make sure that they understand their cosigner responsibilities before submitting an application.

How to Apply for an Auto Loan

Follow these steps to get approved for an auto loan and ensure that you're getting the best deal possible:

1. Check your credit. Auto loans are available to borrowers across the credit spectrum, but knowing where you stand can help you evaluate your options and decide when you're ready to move forward. You can check your FICO^® Score for free with Experian.
2. Set your budget. Take a look at your income and expenses over the past few months to find out how much you can comfortably afford to spend on an auto loan payment. Then, you can use a reverse car loan calculator to get an estimate for the loan amount. You'll also want to decide how much you want to put down on the purchase.
3. Shop around. Go through the preapproval process with different types of lenders, including banks, credit unions and online lenders, so you can compare offers and choose the best one for you. You'll likely need to provide some basic information about yourself and the vehicle you want to buy.
4. Go car shopping. With your preapproval letter in hand, you can visit local dealerships to find a car within your budget. Be sure to research prices beforehand, so you can properly negotiate the car price.
5. Finalize the loan. After you've come to an agreement with the dealer, reach out to your lender to complete the loan. At this point, you may need to provide additional information and documentation to prove your identity, income and other application details. Once the loan is funded, you can take your new car home.

The Bottom Line

Auto loan interest rates and other terms may change over time based on economic conditions. However, you can still save money on a new or used car loan if you take steps to improve your credit and shop around, among other things.

Throughout the car-buying process, it's important to regularly monitor your credit score so you can track your progress, make adjustments and protect yourself against new developments that could set you back.