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How is the interest rate on a car loan calculated?
What information do lenders use to calculate the interest rate on a car loan? I don't know what to expect when I apply for loans, but I want to be prepared so I can get the best rate.
Liz Jenson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
In general, lenders consider many factors when calculating your interest rate. But one of the biggest factors lenders account for is your credit score.
That said, lenders also consider the following factors when setting your interest rate:
- Debt to income ratio
- Loan amount
- Loan term
- Down payment
- Which car you’d like to purchase
Since every lender calculates your interest rate differently, it’s hard to understand exactly why your rate is what it is. But if you consider the above factors, you can typically get a good estimate of what your rate should look like. For a better frame of reference,here are the average interest rates for used car loans by credit score:
- 750 or higher: 5.1%
- 700 to 749: 4.91%
- 600 to 699: 5.89%
- 451 to 599:11.24%
- 450 or lower: 14%+
These interest rates might seem high, but try not to worry! If your monthly payments are hard to keep up with, you can always offset the cost by saving on car insurance with
Jerry
.A licensed broker, the Jerry app helps users save an average of $879 a year on car insurance. Just download the app, answer a few questions—and Jerry will help you compare quotes from top providers like Allstate and Progressive for free.
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- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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