Auto Loans
An auto loan is secured by the car itself, which keeps rates lower than unsecured borrowing. The trick is getting financing right before you sit down at the dealership.
Typical APR (new)
5% to 10%
Typical APR (used)
7% to 15%
Common terms
3 to 7 years
Collateral
The vehicle
Figures above are typical ranges for general guidance only. Your actual rate and terms depend on your credit, income, and lender, and change over time. Confirm current numbers directly with a lender.
An auto loan is a secured installment loan: the car is the collateral, so if you stop paying, the lender can repossess it. That security is why auto rates run lower than personal loan rates for the same borrower. New cars get the lowest rates, used cars a bit higher, because a used car is a riskier asset to repossess and resell.
The single most useful habit is to get preapproved by a bank or credit union before you visit the dealer. Preapproval gives you a real rate to beat. Dealers can be a convenient place to finance, but the financing desk is also a profit center, and the rate they quote you is sometimes marked up over what you actually qualified for. When you walk in with a preapproval, you turn financing into a competition rather than a negotiation on their terms.
Watch the loan term. Stretching to 72 or 84 months makes almost any car fit a monthly budget, but it also means you can owe more than the car is worth for years, a situation called being underwater. A shorter term costs more per month and far less overall.
When it makes sense
- You are buying a vehicle and want a rate locked in before you negotiate.
- You have steady income and want to keep your cash for a down payment.
- You can comfortably handle a term of 60 months or less.
What to watch for
- Long terms of 72 to 84 months keep you underwater on the loan for years.
- Dealer rate markups can quietly add a point or more over your real rate.
- Add-ons like gap insurance and extended warranties are often overpriced at the desk.
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6 min readFrequently asked questions
Should I get preapproved before going to the dealership?
Yes. A preapproval from your bank or credit union gives you a concrete rate to compare against the dealer's offer. If the dealer can beat it, great. If not, you already have financing in hand.
Is it better to finance a new or used car?
New cars carry lower interest rates but depreciate fastest in the first few years. A late-model used car usually costs a bit more to finance but far less to own overall. The right answer depends on your budget and how long you plan to keep it.
What term length should I choose?
Pick the shortest term whose payment you can comfortably afford, ideally 60 months or less. Longer terms lower the payment but raise total interest and keep you underwater on the loan longer.