What Is a Good Interest Rate for L/Certified Pre-Owned Cars?

Most people search for the lowest price on goods and services, including vehicles. However, many buyers don’t know that the interest rate affects how much you pay for a car. In some cases, you could end up paying thousands of dollars more. Unfortunately, some people don’t know the best interest rate or how to find it.

Many factors contribute to your interest rate, making the topic more difficult to understand. To help, we asked our finance professionals to examine current interest rates and compare them to creditworthiness. We’ll also discuss tips for improving your credit score and getting lower rates on your next loan.

Annual Percentage Rate for New and Used Car Loans

The annual percentage rate (APR) on car loans varies by lending institution and changes almost daily. Your credit score is the most significant impact on your interest rate when you apply. Other factors include the age of the vehicle, mileage, and condition. Below, we’ve listed the recent national averages for new and used car loans and separated them by credit score.

As the table shows, the APR rises as the credit score lowers. This is because credit bureaus use complex algorithms to grade individual creditworthiness, expressing them in scores between 300 and 850 points. You want the highest possible credit score to save money when applying for a loan.

Excellent Credit Score: 750-850

If you have a credit score of 750 or higher, you have an Excellent credit rating. Banks see buyers with Excellent credit ratings as having a very low risk of late payments or defaulting on the loan. As a result, you’ll qualify for the lowest APR available.

In addition, a buyer with an Excellent credit score will qualify for any special financing deals a dealership might offer. For example, at Eskridge Lexus, you can take advantage of our 5.49% financing rate for up to 72 months on any L/Certified pre-owned Lexus. These vehicles include the Lexus ES, RX, GX, and NX 2018 models and newer.

Good Credit Score: 700-749

Buyers in this credit category carry a Good credit rating. Someone with a Good rating might have a few negative marks on their credit score but still present a low risk to lenders. Negative marks in this category typically come from having too much credit usage or not having a long enough credit history. However, in most cases, Good credit scores result from on-time payments.

When you shop with a Good credit rating, you still qualify for lower-than-average rates. Most dealerships love working with Good credit buyers and will extend most, if not all, of their best credit offers to this category.

Fair Credit Score: 600-699

If you have a Fair credit rating, chances are you’ve had a few issues in the past with credit, and that’s okay. It’s pretty common for people to have a few late payments. Life happens, and a bill could get misplaced, or your credit usage rate might be higher than what lenders deem optimal.

As a result, you present a higher risk of possibly being late or missing a payment. Having a Fair credit score won’t prevent you from securing a loan. However, banks protect their investments by charging a higher APR to offset the potential of late payments.

If you secured a loan with this credit score, we recommend making on-time payments for over a year and then refinancing the loan. You’ll qualify for a better interest rate and have equity built up in the car, which lowers your risk to lenders.

Bad Credit Score: 451-599

Unfortunately, some people end up in this category. According to Experian, 16% of Americans have a Bad credit rating. Most of these people get there not by making bad decisions but through bad luck. People lose jobs or get sick and can’t pay their bills as hoped.

You may not qualify for a low interest rate if you have bad credit, but you won’t automatically get declined. Instead, you’ll get approved if you have a steady income and your credit usage remains in good proportion. Then, you can take the approach recommended above and refinance after a year.

Poor Credit Score: 450 and Below

Buyers with a score below 450 will have difficulty securing a car loan. Most mainstream lenders won’t extend loans to buyers with what they consider deep subprime credit ratings. However, some lenders specialize in offering loans to Poor credit buyers. These loans will have the highest interest rates, significantly increasing your monthly payment. Therefore, you might be better off improving your credit before committing to a deep subprime loan APR.

How To Improve Your Credit Score and Qualify for Lower Interest Rates

Making on-time payments will help. Even if you don’t have the entire monthly payment for a bill, paying a portion could prevent a creditor from reporting the late payment. In addition, making on-time payments goes hand in hand with lowering your debt-to-income ratio. Paying off loans will lower this ratio and improve your credit score.

If possible, we suggest you consolidate your debt. For example, if you have five open credit accounts owing an average of $1,000 each, taking a loan to pay off the five accounts provides several advantages. First, you can afford to make higher payments on one loan versus making smaller payments to five separate creditors. As a result, you can pay the debt off faster.

In addition, once you pay off the five separate accounts, those creditors report your account as paid and in good standing. Plus, you’ve doubled your credit limit by securing the debt consolidation loan, which quickly lowers your debt-to-income ratio. This could boost your credit score by 50 points or more in certain situations.

Find Affordable Interest Rates at Eskridge Lexus

You should know that buying an L/Certified pre-owned vehicle typically qualifies you for a lower interest rate than other regular used cars. Most lenders give lower rates for L/Certified pre-owned cars because of their higher value due to low mileage and excellent condition.

To get started, we suggest you apply for pre-approval using our online loan application. You’ll receive your approval in minutes, including your loan amount, monthly payment, interest rate, and terms. Then you can shop confidently, knowing exactly what you can afford.

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