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Lexy Zorotrian


We live in a world where we absolutely need a car to get around. Whether you live in a big city, or out in the boondocks, you’ll still find yourself in need of a car one way or another. Most of us get our first car when we’re young and naïve; so we don’t really know much about purchasing one. We can either seek guidance from our parents, or from the internet!

Another really good question to go with this article is how much do you want your interest rate to be for this car? I was actually fortunate enough to have my mom with me when I bought my first car. My mom’s credit is astounding! So we decided to have the title under her name, and make me the co-signer. Walking out, we were able to get stuck with an interest rate of 1.99%! That is one of the best interest rates you can possibly get for a new car.



Apparently, on a 4 year loan for just a used car, the average interest rate was 4.77%, and the average rate for a 5 year loan with a new car is around 4.15%. These rates are for people with decent credit scores, which would be around 680 and below. Sometimes with this credit score, you’ll get stuck with interest rates as high as 9%! That’s totally outrageous, but that’s just how the credit world works.

Now, let’s say your credit score is 700 and above. Your chances of getting an interest rate between 0% and 1.99% are a lot higher. For young adults, though, it’s a lot harder to keep your credit score above 700. I’m a young adult myself, and I was just a teen when I got my first car. We’re still pretty new to the credit game, so we don’t have a lot of experience. The longer you’ve had credit, the better chances you have of higher credit. Most of the time when someone gets their first car, they haven’t had much time to build it up, so it’s nearly impossible to get a good interest rate.



There are a few things that you can do to try and get the lowest interest rate on a car.

One thing you can do is to shop around! When you’re looking for a car, never buy the first one you fall in love with! Talk to the salesman about the price and how much the interest rate would be on the car; get a quote. Move onto the next car lot and do the same thing there. Finally, you’ll have several quotes for the loves of your life. It’s up to you to make the right decision and pick the best car that fits your budget.

When I bought my first car, my mom and I checked with our bank before we bought the car. With her credit score, the dealership was still asking for around 5% in interest rates! So she turned around and called our bank about a loan, and she was able to get the interest rate of 1.99%. Just like that, we saved over 3% just by talking to our bank. Now, not everyone will be so lucky. It depends on the bank you have, how long you’ve been banking with them, and your credit history. You should really check everywhere before making a final sale for a car.



Applying for a car loan is actually one of the easiest loans you can get, even with a low credit score. I would just advise you to put down as much money up front as you possibly can. The more money you put down, the less you owe in the end. Sure, it doesn’t have anything to do with your credit score, but your credit score has a lot to do with your interest rates! If you don’t have the best credit, your interest rates will be higher, and therefore, you’ll owe more money in the end. If you put down a $5,000 down payment for a $15,000 car, then you’ll only owe $10,000, not including your interest rates, of course.

Think of this like a waitress. Which tables do you think she’d want to serve more; the table for two, or the table for a family of eight? Let’s say in the end, each table will pay 10% of their bill in tips, and each meal was $20, not including drinks or appetizers. The table with two will have a bill of $40, while the family of eight is going to owe $100. The tip she’d be getting from the table to two would be $4, while the table of eight would be $10. Yeah, yeah, not the best example, but it’ll put an idea in your head.

Down payments obviously don’t have interest rates included, so all the money you put down goes straight to the car. Let’s say your interest rate just so happens to be 10% on your $15,000 car. You put down $1,000 as a down payment, so now you owe $14,000. 10% of that would be $1,400 in interest rates, my friends. So in reality, the car comes out to being a total of $16,400; down payment included.

Let’s say you chose to put $5,000 down for your car. You’ll only owe $10,000, right? 10% of that would be $1,000 in interest rates. So the car would be a total of $16,000. You’d only be saving $400, sure, but that $400 can go towards a new stereo system for your car, instead of to the bank.



Let us talk about average interest rates for a new and used car, shall we?

According to credit.com, back in 2014, those with really good credit paid an average of 3.53% in interest rates, while those with horrible credit paid an average of 18.44%. Let me break it down for you a little bit:

Average New Car Rates in 2014

  • Really Good (740+): 2.70%
  • Good (680-739): 3.67%
  • Decent (620-679): 5.49%
  • Bad (550-619): 9.25%
  • Really Bad (<550): 12.42%


Average Used Car Rate 2014

  • Really Good: 3.53%
  • Good: 5.09%
  • Decent: 8.18%
  • Bad: 14.15%
  • Really Bad: 18.33%


Do you see how important good credit is?

So, to answer our original question, your credit score can be good or bad for an auto loan. If you don’t want to pay more than 5% on interest rates, though, you would need to have a credit score of 680 and above.

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