Understanding Average Car Loan Interest Rates in 2025

Car loans remain a cornerstone of vehicle ownership, but understanding the average interest rate is critical for smart financial planning. As of 2025, the average interest rate on new and used car loans stands between 5.8% and 7.4%, reflecting broader economic trends and lender risk assessments.

What Determines the Average Car Loan Interest Rate?

Lenders base car loan rates on multiple factors, including your credit score, loan term, down payment size, and market conditions. In 2024–2025, strong credit profiles (720+ score) typically qualify borrowers for rates near 6.2%, while those with lower scores may pay over 8%. The average rate also fluctuates with the federal funds rate and inflation, both of which have stabilized moderately in recent quarters.

Current Average Rates: New vs Used Loans

• New Cars: The average interest rate for new vehicles in early 2025 is approximately 6.1%–6.6%, depending on the make and model. Premium brands and larger loans tend to carry higher rates, while certified pre-owned (CPO) vehicles often offer rates 0.5%–1% below market averages due to lower risk.
• Used Cars: Used car loan rates average 5.9%–7.2%, with stronger credit unlocking rates closer to 6.0%. Market demand and residual values play a significant role—higher-demand models see tighter financing options.

How to Get the Best Rate on Your Car Loan

Securing a competitive car loan rate requires preparation and strategy. Here are actionable steps based on 2025 best practices:

• Check and Improve Your Credit: Lenders prioritize credit history; even a 50-point boost can lower rates significantly.
• Shop Around: Compare offers from banks, credit unions, and online lenders—rates vary widely. Tools like RateCompare and NerdWallet help streamline this process.
• Make a Larger Down Payment: Paying 20% or more reduces loan amount and perceived risk, often cutting rates by 0.5%–1%.
• Opt for Certified Pre-Owned (CPO): CPO vehicles often qualify for lower rates due to thorough inspection and warranty coverage, improving approval odds.
• Lock in the Rate: Request a fixed-rate loan to avoid future increases, especially if rates are rising.

Real-World Example (Based on 2025 Data)

A 2025 survey by Experian shows a borrower with Excellent credit (770+), 3% down, and a 60-month term secured a 6.1% fixed rate on a $30,000 new car—substantially better than the 2020 average. Conversely, a borrower with Fair credit (630–659) paying 72 months received 8.2%, highlighting the impact of creditworthiness.

The Road Ahead: Staying Ahead of Rate Shifts

Interest rates remain sensitive to Federal Reserve policies and economic indicators. As inflation cools and job stability grows, 2025 rates are expected to stabilize or slightly decline by late year. Monitoring your credit, refinancing when advantageous, and maintaining steady payments will help maximize long-term savings.

In summary, knowing the average car loan interest rate empowers you to make cost-effective borrowing decisions. With careful preparation and market awareness, securing favorable terms is well within reach—so begin your research today and take control of your vehicle financing journey.