What Affects Your Auto Loan Interest Rate?

“What’s my rate?” It’s the question I hear most, and I get it. But the honest answer is that a lot goes into the interest rate on an auto loan, and your credit score is only one piece of it. It isn’t as simple as “I have good credit” or “My score is 740, so I should get the lowest rate out there.”

Lenders look at your score, how long and how deep your credit history is, how much debt you already carry, how the new payment compares to your income, and how much money you’re putting down. Below, I’ll walk through each one so you know what to expect before you sit down with us.

Our goal, and honestly our pleasure, is to get you approved and into the right vehicle.

Before you apply: check for a credit freeze

If you’ve frozen your credit, lenders can’t pull it, and your application stalls until the freeze is lifted. Before you apply, temporarily lift it with all three credit bureaus: Equifax, Experian and TransUnion. It only takes a few minutes online with each one.

Credit score tiers

Every lender draws these lines a little differently, but here’s roughly how it breaks down:

Tier	Typical score	What to expect
Prime (excellent)	720 and up	A long, solid credit history: think years, not months. Typically gets the best rates available.
Good	680 to 719	Good rates, a little higher than prime.
Medium	620 to 679	At this point, rates can reach double digits.
Low	600 to 619	Higher rates still, and lenders may start asking for money down or proof of income.
Subprime	Under 600	The lower the score, the harder it is to get financed. Expect to need money down and possibly a co-signer.

With a subprime score, lenders often require extra paperwork, such as pay stubs, proof of income and proof of residence. It can be done, but it takes work. We’ve seen scores as low as 490 approved on occasion. It’s rare, and every situation is different.

Thin credit file

A thin file means very little credit history. Maybe you’ve had one credit card for only a few months, or you have a card you never use. Or maybe you paid off your last car 15 years ago, haven’t borrowed since, and haven’t had any credit activity in a decade.

A thin file affects every tier. Someone with a 720 score and a thin file will usually get a higher rate than someone with the same 720 score and a long history.

No credit score

Sometimes there isn’t enough history to generate a score at all. You can still potentially get approved on your own, but a solid co-signer, money down, or both will help a lot.

Credit history

Lenders look at how long you’ve had provable credit and what shows up on your report. That can include credit cards, auto loans, personal loans, mortgages, student loans, rent, child support and alimony, along with any charge-offs, late payments, repossessions or bankruptcies.

Debt to income

Debt to income (DTI) compares the monthly debt payments you already have with your gross monthly income, meaning before taxes. Most lenders like to see it under about 35%. At 45%, you’re high risk in a lender’s eyes.

For example, if you earn $5,000 a month before taxes, 35% works out to $1,750 a month in existing debt payments.

Payment to income

Payment to income (PTI) compares the new car payment alone with your gross monthly income. Lenders typically cap it at about 15% to 17%. To find your own range, multiply your monthly income before taxes by 0.15 and by 0.17.

Co-signers

A co-signer adds themselves to the loan to help you get approved, lending their credit score and income to the deal. Both of you are responsible for the loan and the payments.

Money down

Your down payment lowers the overall drive-out price and your monthly payment. Depending on your score and the deal, a lender may require it. The lower the score, the more money down lenders typically want, but money down always helps.

Every deal is different

I hope this helps you understand some of what goes into an auto interest rate. No single scenario fits everyone, and every deal is unique. We structure every deal to get you the best rate we can.

Wondering what the payment might look like? See How to Estimate a Car Payment Before You Shop.

Thanks for taking the time to read and share. Reach out anytime, or start with our financing application and we’ll tell you where you stand. Talk to us!