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How to Find the Best Deal On An Auto Loan (And How Much You Should Spend)

Aside from buying a home or perhaps paying for a college education, buying a car will most likely be your most expensive purchase as an adult. The average monthly new car payment in early 2023 was $725; the used car average was $516, according to Experian. In other words, your car payment can be an enormous part of your monthly budget, which is why it’s so important to secure the best possible deal on an auto loan and ensure you aren’t paying more than necessary in interest.

What’s the best way to do that? And what’s the truth behind those “0% financing” deals you’ve seen? Here’s a rundown on how to find the best deal on an auto loan so you can drive off into the sunset with confidence.

The Financing Is Just As Key As The Car

Sometimes car shoppers get laser focused on just that — shopping for a car. But while negotiating the price of your vehicle is important (especially in this market), financing rates can vary widely and make a huge difference in your monthly outlay. Here’s an example: If you put $6,000 down on a $30,000 car purchase, with an interest rate of 9% and a loan term (length of the loan) of 60 months, you’ll spend $498 every month over the course of five years. But if you can lock in an interest rate that’s two percentage points lower at 7%, your monthly expenses drop to $475 per month, for a savings of $1,380 over the life of the loan. And at 5%? It’ll be $453 a month, for a total savings of $2,700.

What’s In A Loan Rate?

There are a number of factors that play a role in the interest rate you’ll pay — chief among them your credit score. In mid-2023, a great credit score (781-850) would net you an average rate of about 5.2% on a new car, 6.8% on a used car. A good store (661-780) meant an average 6.4% on a new car, 8.8% on a used one. A fair score (601-660) merited an average 8.9% on a new car, 13.3% on a used one. And a score under 600 meant you’d pay an average 11.5% on a new car, 18.6% on a used one. (In general, used car loans cost more because the car is more likely to fail, and the borrower may then be less likely to pay back the loan if they’re suddenly without a car to get to work.)

Clearly, that’s reason enough to keep your score as high as possible. But credit score isn’t the only factor in the mix. Your rate can also adjust based on your down payment (according to automotive advice site Edmunds, car buyers should look to put at least 20% down for the best rate.) The length of your loan (the term) makes a difference — shorter translates into a lower rate because the risk to the lender is less when you have the money for a fewer number of years. Finally, there’s the price of the car, which can change with negotiations at the dealership, explains Scotty Reiss, founder and CEO of A Girls Guide to Cars, a website that’s empowering women to be smarter, happier car buyers (and owners) by arming them with car information.

“It's good to have a car loan calculator handy so you can plug in those variables and see what your payment will be,” Reiss says. It allows you to plug in all your information and tinker with the details to see how your payments will change.

Find Financing

In terms of where to find the best interest rate, comparison shopping is key. It’s important to understand that not only are you not locked into financing from your dealer, you’ll have an edge if you come in to shop with financing from another source. One of the best places to start your rate-shopping journey is at your local credit union. Credit unions across the country have some of the best auto loan rates — for used cars as well as new.

Finance a Vehicle Through Rio Grande Credit Union

Rio Grande Credit Union can help your dream of buying a new car a reality. Not only can we help finance your car, but RGCU also offers a find a vehicle tool that can help streamline the process. Most people spend weeks looking for the right vehicle before they make a purchase. You can spend that time searching for your perfect car, truck, SUV or van from the comfort of your own home with two amazing options from Rio Grande Credit Union.