New Car Interest Rates Explained

Reader question:

About how much does each type of interest rate cost over time if you’re buying a new car?

Gary

Great question, Gary.

Over a period of time, high interest rates will cost you a whole lot of money. The highest ones can cost you up to half as much as half the price of your car. If you were able to get low interest rates, you might as well have gotten a more expensive car. For this reason it’s very important to watch your credit report and make sure your credit is decent before you walk into a car dealership. If you don’t, it will end up costing you a lot more than a little waiting would have.

If you have a good credit score, you can probably grab a pretty decent APR of around 4% for your loan for buying a new car. But what if you have bad credit? Or no credit? You’re looking at about six times that amount over the time that you are paying your auto loan. It’s things like this that cause people with bad credit to remain with bad credit. If you’re stuck with thousands and thousands of dollars in things like interest in fees, it’s hard to get out of the whole you got dug because it just keeps on growing.

If you want numbers, here they are. Say you get an auto loan that stretches over forty eight months and for fifteen thousand dollars. If you have good credit, you can get it at 4% APR, which, over time, will mean that you pay $1257 in interest. If you have decent credit, between 600 and 680, you can get ten to fifteen percent APR on your auto loan, at $3261 and $5038 respectively. Then, if you have bad credit, under 600, then you can get about 21% and get stuck paying $7296 in interest over the auto loan term.

Cheers,

Fashun Guadarrama.

About the Author:

Austin Davis, consumer car repair advocate. "Hi there! I love to help people solve their car repair problems and I hope my site was helpful to you today. Thank you for stopping by."