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How much interest is too much for a car loan?
I’m looking at interest rates for car loans and I’m just wondering, how much is too much? I want to get a new car but I’m worried that I’ll bite off more than I can chew with interest costs.
Liz Jenson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Typically, car loan interest rates should not exceed 25%.
How much interest is too much for a car loan largely depends on your budget and your profile as a borrower. Car loan rates vary, and what might be too much interest on a car loan for one person might actually be a very low rate for another.
These are a few major factors that will impact the interest rate you’ll get on a car loan:
- Your credit history
- Your debt-to-income ratio
- Current market conditions
- The lending institution you choose
Car loan APRs range from 0% to 25% or higher since they are largely determined by your credit score.
To give you a better idea of typical interest rates for different credit scores, here are the current average rates for a 48-month loan:
- 781 to 850: 2.34% for a new car, 3.66% for a used car
- 661 to 780: 3.48% new, 5.49% used
- 601 to 660: 6.61% new, 10.49% used
- 501 to 600: 11.03% new, 17.11% used
- 300 to 500: 14.59% new, 20.58% used
To make sure that you’re getting a good rate on your car loan, it’s a good idea to shop around with different lenders and compare your options.
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- Gregory R.
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