How to get a low interest rate on a car loan


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  • To get a better rate, start by understanding your credit situation and taking steps to improve it.
  • You can get a lower interest rate on your auto loan with a co-signer who has good credit.
  • Putting more money up front on your loan will often get you a better rate.
  • Learn more about Insider loan coverage here.

If you are looking for a new or used car, you are looking to get the best possible deal on your auto loan and get the most out of your money. Fortunately, to get a good interest rate, it only takes careful research and a willingness to negotiate the terms.

Here are five tips to help you get the lowest interest rate on your car loan.

Understand your credit situation and what you can afford

Your credit score plays an important role in the interest rate you receive from a lender. A borrower with excellent credit can often get a rate of 10 percentage points or more than a borrower with bad credit.

If your credit is at the lower end of the scale, you can benefit by taking the time to improve it before you take out a loan. To increase your credit score, try to maintain a credit utilization rate – the percentage of your total credit that you use – of 30% or less, and create a system to pay bills on time.

If you need to access your credit report, you can get it for free from any of the three major credit bureaus on annualcreditreport.com every week until April 20, 2022. This report will give you information about your payments and your credit history, although it will not provide you with your credit score. Examining your credit report can help you spot mistakes and find areas for improvement.

You can get your score for free on your credit card statement or online account. You can also buy it from a credit reporting agency.

Take a tour of the different lenders

Many lenders will show you your pre-approved rates and terms online once you’ve met them, and they’ll generate a smooth credit draw. Taking the time to get quotes from different lenders, national and local, will give you more leverage in negotiations as you will understand the going rates with your particular credit score for the car you are interested in.

Don’t just factor in the quoted interest rate; calculate the total interest you will pay over the life of the loan based on your overall loan amount and the length of the term.

While it may seem simple, a lower overall price will reduce the amount of interest you will pay on the loan.

You can reduce the selling price by declining additions such as heated seats and rear entertainment systems. You can also get a lower interest rate on a new car than on a used car, as used cars often have more mileage, expired warranties, and increased wear and tear. Lenders factor the increased risk of mechanical failure into the interest rate.

Add a co-signer

If your credit is not at its best, you may be able to improve your rate by having someone with a good credit history co-sign your loan. When you have a co-signer, they basically allow you to “borrow” their credit score to help you get approved for a loan or get a lower rate.

However, your co-signer will be responsible for your debt if you don’t repay your loan, and their credit rating will be negatively affected if you can’t keep up with your payments.

Make a larger deposit

While it’s usually not possible to fork out all the money for a new or used car, it’s in your best interest to put down as much down payment as you can afford. The higher your down payment, the less risk you present to the lender and the lower the interest rate they are likely to offer you. You will also pay less total interest because the overall amount you will need to borrow will be less.

Shorten your repayment term

You should try to go for the shortest repayment term that you can afford with your budget, as you will likely benefit from a lower interest rate. You will pay less per month with a longer repayment term, which may sound appealing, but keep in mind that you will be coughing up more in total interest as you are spreading your payments over an extended period of time.

The best way to get a low interest rate on an auto loan is to do your research and understand which terms make the most sense given your budget and your credit history.


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