Average auto loan interest rates by credit score in 2025

Your finances

The two most common credit scores used when underwriting car loans are the FICO score and VantageScore, although some lenders may use an auto industry-specific scoring system instead. These scores consider risk factors associated with your likelihood of repaying an auto loan. Higher scores generally get lower rates.

Lenders will also consider your income and debt-to-income (DTI) ratio. DTI measures the percentage of your income going toward paying off existing debts. A high DTI could indicate you’re not in a position to take on a car loan. Similarly, your income needs to be high enough to manage your car payments in addition to your current bills and expenses.

Type of lender

It can be tempting to go with dealer financing since it can be the most convenient option, but you have a choice of a bank or dealership loan. Getting financing from the dealership often means less paperwork overall. However, you may find more favorable rates from a bank, credit union or online lender.

Regardless of which option you choose, different lenders have different credit underwriting criteria. All will consider your credit score, income and debt-to-income ratio, but lenders differ on what they find acceptable. Some may also consider your education or professional experience.

Loan-to-value ratio

Loan-to-value (LTV) ratio compares the amount of your loan to the value of the car you are financing. Some lenders offer LTVs of over 100 percent, meaning they will loan you more than the cost of the vehicle. You can use this extra loan money to cover taxes or other expenses related to buying a car, but keep in mind that whatever you borrow will need to be paid back with interest.

Taking out a loan with a high LTV poses numerous risks, including significantly increasing your chances of becoming upside-down on your car loan. It’s also an expensive way to borrow money that starts your new auto loan with negative equity. The best way to protect your finances is to make a good down payment and finance only what you absolutely need.

Economic and market conditions

Broader market factors also play a role in setting the industry’s minimum rates. When the federal funds rate is high, as dictated by the Federal Reserve, it costs lenders more to borrow money. In turn, you are likely to face higher interest rates.

Following three cuts in 2024, the current fed funds target rate is 4.25 to 4.5 percent. These cuts came after nearly two years of steady rate hikes and should result in lower rates for most financial products, including auto loans. While the Federal Reserve didn’t raise or lower the rate during the most recent FOMC meeting in May, there may be changes over the course of the year, so keep an eye on the market.

If you have strong credit, experts forecasted auto loan rates may see a decent decrease through 2025. However, those with poor credit are less likely to see relief. If that’s you, focus on comparing bad credit auto loan rates.

Vehicle age and features

Lenders set restrictions on the vehicles they will finance and generally won’t finance vehicles over ten years old or with more than 100,000 miles. There can be other limits as well, generally based on criteria such as the brand, vehicle condition or value of the vehicle.

Your lender may also limit where you can purchase your vehicle. For instance, some independent dealerships cannot offer manufacturer financing. Similarly, companies like Carvana will only finance vehicles you purchase through their car-buying service.

How to get a better auto loan interest rate

There are a few ways to improve your chances of getting a reasonable interest rate, regardless of your credit score.

• Prequalify with multiple lenders. Apply with at least three lenders before choosing one. Most lenders offer either a preapproval or prequalification process so you can view your rates without causing multiple hard pulls on your credit. This tactic may also help you score competitive auto loan rates.

• Make a larger down payment. A down payment decreases the amount you need to borrow. This means the lender takes on less risk, translating to lower interest rates. Experts recommend aiming for at least 20 percent of the car’s purchase price, although the average down payment sits between 10 percent and 20 percent of the purchase price.

• Get a cosigner. If you have a lower credit score, consider asking a family member or trusted friend with an excellent credit score to cosign your auto loan. Your cosigner will assume the debt if you cannot pay it back, which means the lender has less risk.

• Choose a short loan term. While your loan’s term does not directly impact your interest rate, it does affect how much total interest you pay. Longer terms mean paying interest for longer, while shorter terms can save you money.

• Improve your credit score. Higher credit scores consistently get better interest rates, and the difference can add up to hundreds of dollars in savings. Building your credit score takes time, but it also involves steps like lowering your DTI, which is important for qualifying for an auto loan.

Bottom line

The lowest car loan rates are typically reserved for borrowers with near-perfect credit scores. While you are not guaranteed to get the rate corresponding to your credit bracket, it is great for comparison purposes when shopping around for a good deal.

To get started, prequalify for an auto loan with lenders online and offline to see the rates you may be eligible for.