Real Talk: What's a Great Interest Rate on a Used Car?

Buying a pre-owned car often makes solid financial sense, but interest rates on used cars are typically higher. What is a good interest rate on a used car and what determines it?

Wheel Deal: Scoring a Good Interest Rate on a Used Car

Choosing to buy a pre-owned car is often a smart move, but the price tag on a good-quality used auto is still significant. If you are looking at buying a used car these days, there’s a good chance you are going to need financing to do it. The lower the interest rate you can snag on your loans, the better the deal.

Let’s take a look at some of the factors that go into determining rates and how that might apply to buying a used car.

Why Are Rates Higher on Used Cars?

Many people are surprised to find that interest rates on used cars are higher than on new cars. That's mostly because it's harder for a dealer or lender to estimate how much a used car is really worth. While the age and mileage may be known, it is difficult to know if additional wear and tear or underlying problems are going to shorten the life of the car.

Most lenders price in this uncertainty by charging a higher interest rate on used cars, regardless of the term.

Who’s Your Lender?

The type of financial institution lending you money for your auto loan also makes a big difference.


Banks offer car loans along with their checking and savings accounts services. If you are in good standing with your bank you may be able to negotiate a relatively low rate.

Credit Unions

Credit unions are nonprofit financial cooperatives owned by their members. Smaller than banks, they are often able to offer members lower rates and more flexible terms.

Online Lenders

Specialist online lenders aim to offer competitive rates on auto loans by selling in bulk and keeping their overheads low.

Car Dealerships

Car dealerships offer financing to customers through indirect lenders. Financing is usually extended on the day of purchase and rates and fees are usually relatively high.

Sub-Prime Lenders

Sub-prime lenders are indirect lenders who specialize in borrowers who are unable to get auto loans elsewhere. They cover their risk by charging substantially higher rates.

How Good Is Your Credit?

Your creditworthiness is by far the biggest factor in determining your auto loan interest rate. Lenders look at two main factors:

Credit History

Your credit history is a long-term record of all your bills, credit cards, rent-to-own agreements, and loans. Lenders will look hard at how much debt you have and how reliably you have made payments. This is used to determine your credit score, which is a major factor in determining if you qualify for an auto loan and the rate you are likely to be offered.

Debt-to-Income Ratio

Lenders will also look specifically at how the level of debt you are carrying compares with your income level. If a significant portion of the money you are earning is going to pay down debt, it will make it harder for you to borrow more money for your auto loan and you will likely pay a higher interest rate.

Down Payment

The amount of money you can put down on a car also affects the interest rate you will be charged on your loan. Lenders know you are more likely to take care of a car in which you already have a significant stake. And, with less of their money at risk, they will be more willing to offer lower rates to repay the remainder of your loan.

Length of Loan

A longer loan term will likely mean a slightly higher interest rate while at the same time lowering your monthly payment. That can add up to more of an overall payback, and it also means you are committed for longer to paying down an older car that might be less safe, fuel-efficient, or reliable.

What Is a Good Rate on a Used Car?

So, what is a good interest rate on a used car?

While lenders will advertise very low interest rates to get you in the door, this is usually the bottom end of a very wide range of possible rates. The actual interest rates will often end up higher after calculating for your credit score and including standard fees.

So, while many lenders, including major banks, are advertising rates between 3.50% and 3.99% APR, actual rates are higher. For instance, U.S. News & World Report quoted the average used auto rate in December 2022 at 8.85% for individuals with excellent credit.

Image of woman holding cars keys inside a new car.

Get Rolling with Radiant

Credit unions are among the best choices if you are looking to finance a used car purchase in Florida. Radiant Credit Union offers members a combination of competitive rates, flexible terms, and fast, convenient service.

Radiant also offers used car buyers:

  • Loan terms up to 75 months
  • No loan application fees, and
  • No prepayment penalties.

Click below to learn how Radiant can help get you rolling with our low rate auto loans.

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