How Auto Loans Work
An auto loan is a secured installment loan used to purchase a vehicle. The car serves as collateral, which is why interest rates are typically lower than unsecured personal loans. Your monthly payment depends on the loan amount (vehicle price minus down payment and trade-in, plus taxes and fees), the annual percentage rate (APR), and the loan term.
Tips for Getting a Better Car Loan
- Check your credit score first. Scores above 720 typically qualify for the best rates.
- Get pre-approved from your bank or credit union before visiting dealerships — it gives you negotiating power.
- Shorter terms save money. A 36-month loan costs less in total interest than a 72-month loan, even if monthly payments are higher.
- Put more money down. A larger down payment reduces your loan amount and the total interest you'll pay.
Auto Loan Rate Guide by Credit Score
| Credit Score | Typical New Car APR | Typical Used Car APR |
|---|---|---|
| 750+ | 5–6% | 6–8% |
| 700–749 | 6–8% | 8–11% |
| 650–699 | 9–12% | 12–16% |
| 600–649 | 13–18% | 16–22% |
| Below 600 | 18–25%+ | 20–30%+ |