What Is Considered High Interest on a Car Loan?

Between promotional rates to encourage you to buy a new car and the varying rates between new and used car financing, it can be hard to figure out if you are getting a good financing rate or being ripped off when you take out a car loan. To discover this, you need to do just as much homework looking into ways to finance your car as you did to pick out the car you want to buy.

Economic Conditions

The state of the economy will drive interest rates up and down. This includes interest rates on car loans. Rates can be affected by the national economy but also by state and local economies as well. To understand whether or not the rate you are being charged is high or just a result of a bad economy, you need to compare the rate to what other places are offering.


You credit score will be a big factor in what interest rate you will be offered for a car loan. If your credit is poor, you will be charged a higher interest rate than if you had excellent credit. Even with poor credit, you will find some variances in the loan rates. CardownLoan.com recommends being very cautious if you are being charged more than 12 percent for a car loan and you have bad credit. Before seeking a car loan, you should check your credit score to get an idea as to whether you will be charged a higher rate or not.

New vs. Used

You will also find differences between rates offered for new and used cars. Don't expect the rate on a used car loan to be as low as that of a new car, particularly when some car manufacturers off zero percent rates on new car financing from time to time. When comparing the rate you are offered, compare it to the same type of car loan (new to new, used to used). This will show you if there is a discrepancy between your rate and what is offered elsewhere.

Average Rates

It is impossible to calculate an average car loan rate and have it be of any use when you go to buy a car. However, CardownLoan.com says that you should expect a new car loan of 4 to 7 percent if you have good credit. If you are being quoted a rate higher than this range and you have good credit, you are looking at a high rate. Some in-house financing for cars may go as high as 20 to 28 percent, which is a very high rate.