Auto Loan Rates – How Federal Reserve Decisions Affect Auto Loan Rates

If you’re in the market for a car, it’s important to understand what your potential auto loan rate will be. After all, your monthly payments are likely to be the single biggest expense of any car purchase you make. The annual percentage rate (APR) you pay will be determined by your credit score and several other factors, including the type of vehicle you choose and how much you’re borrowing.

As you shop for a lender, keep in mind that interest rates are constantly changing. That’s why it’s important to compare multiple offers from different lenders to ensure you’re getting the best rate for your individual situation. You can do this by getting prequalified from several lenders.

Auto loan rates can be influenced by many different things, but the most influential factor is your credit score. Creditors use your credit score to categorize you into different groups — sometimes called “credit bands” based on scoring models like FICO or VantageScore. The higher the credit band, the better your score and the lower your loan APR will be.

The Federal Reserve’s decision to raise interest rates at its most recent meeting may have some impact on auto loan rates. This is because the choices made by the Fed affect the cost for banks to lend to each other and, in turn, the amount that consumers will have to pay to borrow money. While the average car note peaked at $765 a month in February, according to Cox Automotive data, most new vehicles are financed for significantly less each month thanks to auto manufacturer incentives and dealer financing.

Those incentives and dealer finance car loan rates can make the decision to buy a new car seem more attractive, but it’s still important to know what your auto loan rate will be before you start shopping. The good news is that there are lenders who will offer competitive rates for people with great credit and a solid down payment on a vehicle.

Some of the best lenders for a new or used vehicle include credit unions, online lenders and auto loan marketplaces. Some of these lenders also offer a variety of additional services to help with the car buying process, including trade-in and lease buyouts. NerdWallet has rated these lenders based on our editorial review of them for maximum rates, variety of options, visibility of borrower requirements, accessibility, speed of funding and fees.