When you’re in the market for a car loan, one of the most important things to consider is the Annual Percentage Rate (APR). A good APR for a car loan can mean the difference between a manageable payment and one that’s too high for your budget. But what exactly is a good APR for a car loan? That all depends on the type of loan and your personal financial situation. In general, a good APR for a car loan is one that’s lower than the average and offers a payment that fits your budget. To find the best rate for you, it’s important to shop around and compare loan products from different lenders.
What is APR?
APR stands for Annual Percentage Rate. It’s a common method used for calculating the cost of various types of loans. For example, an APR for a credit card might be around 13%, meaning you’ll pay 13% of your outstanding balance each year. APR is also used to calculate the cost of car loans. This method is helpful because it allows you to compare different loans and see which one is more affordable. In general, a lower APR means a more affordable car loan. When you apply for a car loan, you will likely be offered several different rates. While each one is different, they are typically comparable to each other. This is where APR comes in handy. By comparing APRs, you can see which loan option is the most affordable.
Average APR for car loans
The average APR for a car loan is 6.19%. This doesn’t mean that’s the lowest you should go, but it’s a good place to start. If you can get a rate that’s lower than 6.19%, you’ll be in a better financial position. Ideally, you’ll want to get a rate that’s close to your credit score. You can get a free credit score on Credit Sesame. Once you have your score, you can use a car loan calculator to determine what APR you’ll qualify for. It’s important to remember that your exact rate will depend on your credit score, income, and other factors.
Factors that affect car loan APR
Loan term: The term of your loan impacts your monthly payment. The longer the term, the higher your payment will be. The APR of a loan is calculated based on a loan term of 60 months.
Your credit score: Your APR is partly determined by your credit score. If you have a low credit score, you’ll likely qualify for a higher APR. If you have a higher credit score, you’ll get a lower APR.
Loan purpose: Auto loans for purchase have a lower APR than auto loans for refinancing an existing vehicle loan.
Loan amount: The amount of money you’re borrowing impacts the APR. The higher the amount, the more you’ll pay in interest.
Loan term: The term of your loan impacts the monthly payment. The shorter the term, the lower your payment will be.
Shopping for car loans
Before you shop for a car loan, you’ll want to get pre-approved. This will allow you to compare loan products and choose the best option for your situation. To get pre-approved, visit a car dealership or a bank and complete a loan application. You’ll likely be asked to provide proof of income and your credit score. This way, you’ll have a few loan products to compare and choose from. When shopping for car loans, keep the following tips in mind:
Shop around: Shop around and compare loan products from different lenders. You’ll want to see what interest rates you qualify for and see what works best for your situation.
Know your credit score: Your credit score will determine the interest rate you get. The better your credit score, the lower your APR will be. This is important because the APR is what determines the monthly payment.
Shop for the best loan product: In general, the lower the APR, the better. You can use a car loan calculator to determine what your APR will be based on your specific situation.
Get a longer loan term: If you can afford to get a longer loan term, you’ll end up paying less in the long run. If you can only get a short-term loan, try to pay it off as quickly as possible.
How to get the best APR
To get the best APR possible, you should shop around and compare loan products from different lenders. You can also do the following:
Fill out the application completely: Make sure you provide all the necessary information on your application. Include information on all sources of income, your employment history, and your financial situation.
Have collateral: If you have something of value you can use as collateral, you may be able to get a lower interest rate.
Use a co-signer: If your credit is less than stellar, you may have better luck with a co-signer. Your co-signer will be responsible for the loan if you can’t make the payments.
Get pre-approved: When you know the exact amount you’ll be borrowing, you’ll have a better idea of what loan products you’ll qualify for.
Don’t take out more than you need: It’s tempting to get a large loan and pay it off over several years. However, this can lead to added interest and higher monthly payments.
Benefits of a good APR
A lower APR means a more affordable car loan. The lower your APR, the less you’ll pay in interest over the life of the loan. This will free up cash in your budget for other important things in life. A low APR also means a more reputable lender. Lenders that offer lower APRs tend to be more reputable and reliable. This makes them a better choice in the long run. A low APR also means you have a lower monthly payment. Some loan products have lower APRs simply because they have higher monthly payments.
Risks of a bad APR
A high APR means you’ll pay more in interest over the life of the loan. This will quickly add up and leave you with a more expensive car loan than you expected. A high APR also means a higher monthly payment. While APR only impacts the interest rate, monthly payments are also affected by the loan amount. A higher loan amount means a higher monthly payment. Having a higher monthly payment may force you to get a shorter loan term, which means you’ll end up paying more in the long run.
What to do if you can’t get a good APR
If you can’t get a good APR, you may want to consider refinancing your car loan. You can use a car loan refinancing calculator to determine if it makes sense for you. You can also talk to your current lender and see if they offer a lower APR for existing customers. You can also shop around for a new loan or apply for a personal loan. Personal loans are often unsecured, which means you don’t have to use your car as collateral. However, they typically have a higher APR than car loans.