When you’re shopping for a car, one of the things you’ll need to consider is the interest rate. This is an important factor because it will dictate how much you’ll have to pay every month in car loans. Here are the average interest rates for car loans as of 2019: Fixed-Rate Car Loans: 4.39% Variable-Rate Car Loans: 4.29% No-Interest Car Loans: 3.99% It’s important to know these rates in advance so that you can make an informed decision about which type of car loan is right for you. And if you happen to find yourself with a high balance on your car loan, be sure to read our guide on how to get out of debt and start living life on your own terms again.
What is an Interest Rate?
When you’re thinking about a car loan, what’s the average interest rate? It can depend on the type of car loan you’re looking to take out, but in general, car loans with lower interest rates generally have lower payments. If you borrow $20,000 for a three-year loan and your interest rate is 8%, then your monthly payments would be $208. On the other hand, if your interest rate is 12%, your monthly payments would be $240. So it’s important to understand what type of car loan you’re considering and compare interest rates accordingly.
Types of Car Loans
There are a few different types of car loans available to consumers. The following is a brief overview of each type:
Conventional Car Loans
This is the most common type of car loan and typically offers lower interest rates than other types of loans. There are a few things to keep in mind when using a conventional loan though, such as making sure you have enough money saved up to cover potential payments on your car and any penalties or fees associated with early repayment.
Pre-Paid Vehicle Leases
This type of financing allows consumers to lease a new or used car and pay for it over time. The leasing company pays the vehicle off in full at the end, which can be useful if you want to buy the car but don’t want to borrow money from a lender. However, there are some disadvantages to this arrangement, such as having to make monthly payments even if you don’t drive the car that often or having no ownership stake in the vehicle at the end.
Credit Card Car Loans
If you have good credit, this may be your best option for financing a car purchase. Credit card companies offer low interest rates and minimal down payments, so you can get approved for a loan quickly. However, these loans carry high monthly payments and may not be suitable if you need cash quickly or plan on using the vehicle heavily.
How to calculate the APR
To calculate the APR, take the annual percentage rate (APR) and divide it by the loan amount. The resulting number is how much interest you’ll pay on your loan each year.
For example, if you borrow $25,000 for a car with an APR of 12% and a per-month interest rate of $190, your APR would be $2,782.08
Factors that affect the interest rate
There are a few factors that affect the interest rate you will pay on a car loan. The most important factor is the APR, or Annual Percentage Rate. The APR is the percentage that you will be charged for every year of the loan. It is typically a higher number than the interest rate.
The other important factor is your credit score. A good credit score will help you get a lower APR, and may also result in getting a lower loan amount. Unfortunately, poor credit scores can lead to high APRs and even higher loan amounts.
One final factor that affects your interest rate is your credit utilization ratio. This measures how much of your available debt you are using on each type of debt (credit cards, car loans, etc). If you have low credit utilization ratios, this means you are using less of your available credit and this may lead to a lower interest rate on your car loan.
Conclusion
It can be confusing trying to figure out what interest rate you should be looking for when applying for a car loan. The average interest rate for car loans varies depending on your credit score, the type of car you’re buying, and the duration of the loan. However, generally speaking, you’ll want to aim for an interest rate that’s lower than the current market rates.