Car Loan Credit FAQs

What is the Average Interest Rate for a New Car Loan?

Interest rates vary wildly depending on the credit of the borrower, the size of the loan being asked for compared to the down-payment being offered, the type of car being purchased and where it is being bought. Right now, the average interest rate for a new $20,000 vehicle is around 7% with good credit.

Are Interest Rates for Used Cars Higher than New Cars?

Typically interest rates for used cars will be lower than those for new cars because the price of used cards is less, presenting less risk to the bank and more benefit to the borrower.

What is a Car Lease?

Car leasing is the practice essentially of "renting" a car. Much like you lease an apartment, paying a monthly "rent" in order to be allowed to stay there, many car lenders will work with leases, allowing you to pay a monthly bill to keep a car that you are expected to give back at some time in the future as it depreciates in value.

Are Car Trade Ins Worth It?

Generally trading in your vehicle will yield you less return in value than selling it privately would. This is because the dealer has to take into account the time and money they will have to put into a car so that they can sell it for a profit.

Should I Fix-Up my Car Before Trading it in?

The usual recommendation is that if your car requires a little work and you have the funds and/or the technical know-how to fix it up yourself, you should do so and then sell it privately, take the proceeds and put them toward your car as a greater down-payment. This requires more effort on your part, of course, in handling the sale, but the return will come in the form of smaller payments on your new car and possibly a lower interest rate on the loan as well.

When Will my First Payment be Due?

That can actually be a part of negotiation, which many people don't realize. Generally the first payment for a new or used car loan will be about one month away from the date of the sell, but the car dealers usually have the ability to negotiate that back by a month or two or longer if the buyer knows to ask for it.

Can I Pay off my Auto Loan Early?

Different loans will have different rules governing early repayment of loans, but most auto loans today do not have penalties for early repayment. Be sure to read the fine print on your loan paperwork before signing and ask the sales representative if you have questions. For more terms about car loans that you are unsure about, find out what they mean in the glossary.