Interest rates are generally higher for used vehicles than new ones, since used vehicles are slightly most susceptible to mechanical issues happening outside of warranty–issues that could result in late or missed payments. Typically they are about 30% higher than new car rates, but as for specifics, it really depends on a variety of factors. Rates are capped at different levels by each state, and the rate you’re offered varies based on your credit score. We will try to offer a generalized answer, though, as to what expect when it comes to these rates, but the only way to know what rate you’ll be charged is to apply online and receive an APR quote.
The Highest Possible Used Car Interest Rates
A few states allow lenders to charge as much as 24.9 percent for a used car loan. These rates are generally only charged by buy-here-pay-here (BHPH) dealerships and second-chance finance companies. Another common thread with people facing such maximum allowable rates is that they have very bad credit scores. Usually, someone who is staring straight down the barrel of a 24.9 percent interest rate has a sub-580 credit score.
Interest Rate Vagaries
The interest rate that you may have to pay for a used car loan greatly depends on your creditworthiness, as demonstrated by your credit score. Credit scores fall into six categories and so does the amount of interest you will have to pay. Those categories are:
- Excellent 720 or higher. These borrowers may be approved for the current prime interest rate or zero interest offers made by automobile manufacturers.
- Good 680-719. A person with a score in this range may still qualify for the prime interest rate, but not zero interest offers. On the outside, a borrower in this group may be asked to pay prime plus two percentage points.
- Average 620-679. In this group, borrowers may begin to see rates that are as much as seven points over prime. Go here for more on 650 scores.
- Poor 580-619. Once your score falls under 620, you will not find financing at large institutions. You may struggle through a credit union; however, you will find plenty of options within the specialty finance niche. These loans will come with an interest rate that may be as much as 12 points higher than the prime rate.
- Bad 500-579. Here again you will be limited in the number of lenders that you will be approved by. Specialty lenders will approve loans for credit scores in this range, but they come at a cost. That cost is usually an interest rate that is fifteen points over the prime rate. This group may fall into the maximum rate allowable in the state they live in. You will also be offered limited loan terms. Usually, you will face a repayment period of 30 months or shorter.
- Horrible…any score under 500. The lenders who approve loans in this group get really scarce and very pricey. If you find a loan with a score in this range, you will pay the maximum allowed by the state that you live in.
Keep in mind that the credit score you see through CreditKarma or on your credit card statement is not the same as the score considered when you apply for a used car loan. Every credit reporting agency has an automobile specific credit score that is based on your previous use of car loans. If you have been responsible with those loans, your auto-specific score may be 100 points higher than your basic score. If you have not been responsible, it can be at least 100 points lower.