Understanding Auto Loan Interest Rates

Most people enter into the car buying process with little information on the cost of borrowing money to purchase a new or used car. The cost of a car loan or specifically the interest rate is directly related to your credit rating or FICO credit score. The FICO score will give you an indication of an estimated interest rate you can expect to pay to purchase a new or used car.

Auto Finance Companies use a FICO score tiering system to determine your credit worthiness and ultimately your finance rate. Terms such as Super Prime, Prime, Non Prime, Sub Prime and Deep Sub Prime are used with correlating FICO score ranges. The below list are estimates of the FICO ranges

Lending Tier FICO Credit Score

Super Prime 740 or Greater
Prime 680 to 739
Non Prime 620 to 679
Sub Prime 550 to 619
Deep Sub Prime 549 or Less

The tiers of Super Prime and Prime will allow consumers the best auto financing rates with a few points over prime rate. Prime and Non prime will allow a consumer average financing rates with single digit points above prime rates. The final tiers of Sub Prime and Deep Sub Prime have a large range of rate offering with some ten plus points above prime rate.

The key to understanding Auto Loan interest rates it to determine your FICO score and figure out the tier you are in. From there, you can search the internet for the best auto loan interest rates and evaluate your rate from that point. If today's rates are 6.25% and you are in the Prime tier then you should get that rate. However, if you are in the Non Prime Category, adding a few points or estimate at 8% to 9% is where you should fall.

Sub Prime buyers will have to add a few points on the Non Prime rate and Deep Sub Prime a few more if you can find a lender at all.
Always know where you should fall before visiting a auto dealer. If you do not do the work, you will pay the price in a higher rate. Good car shopping.