What You Need To Know About Car Loan Interest Rates

  • by Johns Hopkins FCU
  • 11/2/21
car loan interest rates lg

Whether you are heading off to college, rushing to and from business appointments, or shuffling the kids around, life can be difficult without a car. However, purchasing a new car represents a significant expense, with the average price of a brand new car costing around $40,000.

Sometimes, people continue using their old vehicle as they save money for a new car. However, the cost of maintaining an older car can end up eating into your savings. That is why many people take out a vehicle loan to help expedite the whole process and save money in the long run. 

When you use auto financing, you should carefully examine one important factor: car loan interest rates. You must understand the basics of interest rates, how they work, and how they impact the total cost of a car.

What is Auto Loan Interest?

When you decide to take out an auto loan, you will be charged interest on the total amount you borrow. A financial institution will provide you with the money to purchase a new or used car. In exchange for the use of that money, you pay “interest”. Think of it as the price of borrowing.  You will then have to pay the interest back in addition to the purchase price of the vehicle. 

So while it is important to research and/or negotiate the best price for your vehicle, it’s also important to compare rates. One extra note though--don’t fall for “Zero Percent Financing” if it means the price of the car is more, or other fees are added. Typically, car loan terms run anywhere between 24 and 84 months. A longer term may lower your monthly payment, but will increase the total cost as you will pay interest for a longer period.

It is essential to be realistic about your financial situation when choosing a loan as you could end up losing the car through repossession if you default on the loan. It is also possible that your loan lasts longer than the vehicle's warranty period, leaving you liable for any repair costs.

The car loan interest rate that you are offered will depend on several factors.

Your Credit Score and History

Your credit score and history significantly impact the interest rate that you will be offered. 

For example, getting interest rates as low as 3% on some car loans are possible for consumers with a high credit score. On average, consumers with excellent to average credit scores receive an interest rate of around 5-10%, while consumers at the lower end of the spectrum might be stuck with interest rates as high as 15% or more. 

The Length of the Loan

Car loan terms can run anywhere between 24 and 84 months. Car loans of 72 and 84 months are a relatively new option and increasing in popularity due to the lower monthly costs. However, that means you will pay more interest throughout the life of your loan.

If you service your loan with the right financial institution, you can sometimes delay making payments on your loan. For example, at Johns Hopkins Federal Credit Union, we offer a 90-day deferred payment option in which you don’t have to make a payment for up to 90 days.* It’s important to note that though you are not having to make a payment on your loan during these 90 days, there still will be interest that accrues during the 90 day period of the loan. Talk to a credit union representative to get more details about this option.

Federal Borrowing Interest Rates

Federal Borrowing Interest Rates fluctuate over time and often influence consumer decisions. When the interest rates are low, it is more likely that you will get a better deal, especially if you have an excellent credit score to match.

Type of Car Loan

As mentioned above, there are numerous types of loans available and many different interest rates. For example, a used-car loan usually comes with a higher interest rate because the cars could have a lower resale value.

How Does Interest Work?

Car loan interest rates are calculated based on the amount you borrow (principal). There are three significant factors to consider when taking out a car loan.

Simple Rate

Auto loans use a simple interest rate, which is calculated as a percentage of the borrowed amount. This is good news for borrowers because the interest doesn't compound over the term of the loan.


When you start to repay your loan, you are paying more toward the interest than the principal. However, your loan repayments include less interest over time, and more money goes toward the principal balance. This means that if you are on a longer-term loan, you could still owe more principal than the car's resale value, even after your loan is well underway.

Longer-Term Loans

When you take out a loan, you agree to pay interest for the length of the loan. So, while a 60-month period will see a smaller monthly repayment than a 48-month loan, you will pay more interest over the extra months.

How to Get the Best Car Loan Interest Rate Possible

The best type of auto loan for you will depend on your circumstances. However, there are some things you can do to reduce your costs.

First, a larger down payment may get a better rate as the lender carries less risk. The same applies to consumers with a better credit score. So, it makes sense to save money and find ways to improve your credit score before going ahead with a purchase.

Do your homework and search for the best annual percentage rates (APR). Different providers offer different rates, which can significantly impact the total cost of the loan.

Browse Our Auto Financing Options Today

At Johns Hopkins FCU, we offer numerous financing options to meet the needs of our members, from our Blank Check Auto Loan to flexible auto refinancing loans

In addition, as a credit union, we offer lower rates than banks and finance companies. With us, you can purchase the car of your dreams while saving money through a lower interest rate! 

We offer our members 36, 48, 60, 72, and 84-month terms with various repayment options. We also offer GAP insurance and Debt Protection for added peace of mind, so nothing can stand between you and the car you have always wanted!

Apply Now

*Skipping your first payments up to 90 days extends your maturity date for approximately up to three months. If you have credit insurance coverage on this loan, it does not cover any deferred payments. Note that loan interest will still accumulate, so your final payment on this loan may increase. The option to skip a payment is subject to change or may be discontinued.