How to Get a Good APR on Your Auto Loan

Getting a good APR on an auto loan is a product of your credit score, your ability to pay, your down payment and your loan terms. Concentrating on your strengths, as a borrower, and shopping for the right rate, on the right car can get you the best auto loan APR.

Your Credit Score and APR

The APR, or annual percentage rate, on an auto loan is the real annualized rate you will pay and gives you an apples-to-apples comparison between various loan offers, despite fees or special incentives.

The APR you can be offered will be lower the higher your credit score is. Your credit score is the driving force for your interest rate, although there are other factors like fees as well.

Your credit score comes from proprietary calculations by the Fair Isaac Corp., which uses your credit history as a basis. Three primary credit reporting bureaus maintain your credit history - Equifax, Experian and TransUnion. The history includes a record of all your borrowing plus any negative activity such as late payments. You should keep your credit score as high as possible by making timely payments.

Your Ability to Pay


In addition to your credit score, lenders or auto dealers, will look at your ability to repay the loan you're seeking. They will examine your debt-to-income ratio. A good ratio is when your debt accounts for 36 to 38 percent or less of your gross pay. The better that ratio, the better rate you can be offered. Debt ratios are guidelines and can be exceeded slightly.

The Down Payment

A typical auto loan down payment is about 20 percent. That covers the depreciation (unlike homes, autos lose value the moment you take possession), and can keep monthly payments lower. It also lowers the overall borrowering amount which can improve the loan-to-value ration of the car. The less the auto loan is as a percentage of the car's value, the less risk you pose to the lender and the better rate you can be offered.

Loan Terms

The terms of the loan can affect the APR as well. The shorter you can keep the auto loan, the lower interest rate you can be offered. A longer loan term on an asset that is decreasing in value means the lender's money is at risk longer, secured by an item that covers less of the loan balance year by year.

Shop Carefully

Finally, if you have your credit score, your ability to pay, your down payment and your loan terms in order, you are in a strong position to shop for the best APR on an auto loan.

Be wary of dealer offers of zero down or a low introductory rate. The strength of your application should qualify you for the best APR, and if you are offered those "great" deals, be sure to compare APRs to other auto loans. The APR must be in your loan documentation.

If you don't get the rate you want, consider a less expensive car.

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