When you search "average APR for car loan," you'll be met with some numbers, but they mean nothing without an understanding of your own financial situation and how car loans work.
APR stands for annual percentage rate, and it refers to the cost of your loan, which includes the interest rate and additional fees. The APR of your car loan is largely dependent on your credit score. In most cases, the higher your credit score is, the lower your APR will be.
You won’t know your exact loan APR until you start applying for loans. However, it's important to understand what rate you might qualify for before starting the car buying process.
What Affects an APR for Car Loans?
There are a few factors that contribute to the APR of your car loan. One of the biggest factors is your credit score, which determines your “creditworthiness.” In other words, your credit score indicates to lenders how likely you are to pay back the money you owe.
In general, borrowers with bad credit get a higher APR and borrowers with good credit get a lower APR. This is because lenders see low-credit borrowers as risky or more likely to default on their loans than those with good credit. You usually want to choose a loan with the lowest APR for your situation, because it’s the cheapest option for borrowing money.