The Ultimate Guide To Getting A Car Loan With Low Interest

Getting a car loan with low interest can save you thousands over the life of your loan. Whether you're buying new or used, or even refinancing an existing loan, locking in the best rate means lower monthly payments and less interest expense. This guide breaks down how to get the lowest rates available today, what lenders to consider, and steps you can take to qualify — without wasting time or money.

Know What “Low Interest” Really Means Right Now

Interest rates vary depending on the economy, your credit score, and the type of loan you’re applying for. As of late 2025, a “low” interest rate for a new car loan typically falls between 3.99% and 6.49% APR, while used car loans hover slightly higher, around 5.49% to 8.99%.

Credit unions and online lenders often offer lower rates than big banks or dealership financing. Your goal is to get into the lowest range possible based on your financial profile.

Check Your Credit Score Before You Apply

Your credit score is the most significant factor in determining your interest rate. Here's a breakdown of how your score affects your loan rate:

• 750+ (Excellent): Likely to qualify for rates under 5%
• 700–749 (Good): Rates around 6%–7%
• 640–699 (Fair): Expect rates from 8%–11%
• Below 640: You may be offered rates above 12%, or need a co-signer

You can check your score for free through platforms like Credit Karma or your credit card provider. If your score is under 700, improving it can unlock better offers.

Quick tip: Pay down credit cards, avoid new credit inquiries, and correct any errors on your credit report 2–3 months before applying.

Compare Lenders – Not All Offer The Same Rates

Don’t settle for the first loan offer you get. Shopping around can lead to significantly lower interest rates.

Here are lenders known for competitive rates on car loans:

Credit Unions

PenFed Credit Union: Rates as low as 5.24% APR on new cars, up to 84-month terms

Navy Federal Credit Union: Offers discounts for active duty and good credit, starting around 5.49%

Online Lenders

LightStream (a division of Truist): Fixed-rate loans starting at 6.49% for good credit

Carvana: Easy prequalification, no hidden fees, and competitive rates for used car purchases

Traditional Banks

Capital One Auto Finance: Prequalify without a hard credit pull; new and used car loans starting around 6.99%

Bank of America: Offers a 0.25% rate discount if you're a Preferred Rewards member.

Dealership Financing

Dealers often mark up loan rates to earn a profit. Use dealer financing only if:

• You’re offered 0% APR promotional deals (common on new vehicles from Toyota, Honda, or Hyundai)
• You’ve compared offers from banks or credit unions, and the dealer beats them

Prequalify To See Real Rates Without Impacting Your Credit

Before applying, check whether lenders offer soft-pull prequalification. This lets you see real estimated interest rates without damaging your credit score.

Recommended platforms:

• AutoPayPlus
• MyAutoLoan.com
• LendingTree

These services show you multiple loan offers in minutes. Once you find a good option, apply directly with the lender to lock in your rate.

Choose The Shortest Loan Term You Can Afford

Longer loan terms usually come with higher interest rates. While a 72- or 84-month loan can lower your monthly payment, you’ll pay more in interest overall.

Here’s what to aim for:

• 36 to 60 months: Better interest rates, faster payoff
• Avoid 72+ month terms unless you’re getting a very low APR or buying a higher-priced vehicle

Example:

• $25,000 loan at 5% for 60 months = ~$472/month, total interest = ~$3,300
• Same loan at 7.5% for 84 months = ~$383/month, total interest = ~$7,200

Consider A Co-Signer If Your Credit Isn’t Great

If your credit score is under 650, adding a co-signer with strong credit can significantly lower your rate. This works because lenders are taking on less risk.

Make sure:

• You trust the co-signer, and they understand the responsibility
• Payments are made on time, or both credit scores can take a hit

Think About A Down Payment To Reduce Your Interest

A bigger down payment means you borrow less, and lenders may offer better rates because you're a lower risk.

Aim for:

• 10% to 20% of the car’s price
• For a $20,000 car, putting down $4,000 can cut your interest costs and monthly payment.

Some lenders, like LightStream, offer better rates if you have strong credit and borrow less.

Don’t Skip The Refinance Option

If you already have a car loan with a high rate, refinancing can save you money — especially if your credit has improved since you took the original loan.

Top refinance lenders:

• RefiJet: Fast application, rates from 4.99%
• AutoPay: Helps match you with lenders based on your credit and car
• Capital One Auto Refinance: Good for those with credit scores 580+

Make sure your current loan doesn't have prepayment penalties. Most modern loans don't require double-checking your contract.

Watch Out For Extra Fees And Add-Ons

Junk fees can cancel out low rates. When applying for a loan:

• Skip “loan protection” or “warranty add-ons” unless you’ve researched them
• Read the fine print — look out for origination fees or prepayment penalties
• Ask for a breakdown of every charge before signing

If you're financing through a dealer, don't let them pressure you into buying extras just to get approved. Always ask for the "out-the-door" cost, including everything.

Take These 3 Steps Before You Apply

To give yourself the best shot at a low rate, do this before you submit any applications:

1. Check your credit score and report: Fix errors, pay down balances, and avoid new credit lines
2. Get prequalified with 2–3 lenders: Use soft pull tools to compare offers without hurting your score
3. Set a loan budget based on total cost, not monthly payment: Focus on total interest paid over the life of the loan

Final Thoughts: How To Choose The Right Lender?

Choosing the right lender depends on your credit and priorities. Credit unions often have the lowest rates, while online lenders offer quick approvals and easy comparisons. Traditional banks are best if you already have an account or qualify for loyalty discounts. Compare at least three offers, check total interest costs, and choose the lender that gives you the best balance of low rates, flexible terms, and a simple application.