A car is one of the largest purchases most people finance, and the loan terms you choose can add — or save — thousands of dollars over the life of the loan. Unlike a mortgage, auto loans depreciate against a fast-depreciating asset, which makes the down payment, term length, and trade-in value especially important to get right.
New vs. used car loan rates
New car loans typically carry the lowest rates because the vehicle is worth more as collateral and often comes with manufacturer-subsidized financing offers. In 2026, well-qualified buyers (720+ credit score) are seeing new-car APRs roughly in the 6-9% range, while used-car loans usually run 1-3 percentage points higher because older vehicles depreciate faster and carry more uncertainty for the lender. Borrowers with below-average credit can see auto loan APRs well into the teens or twenties on either type, which is why shopping multiple lenders — banks, credit unions, and dealer financing — matters even more for used vehicles.
How trade-in value affects your loan
Your trade-in value is subtracted directly from the vehicle's price before your loan amount is calculated, just like a down payment. A $4,000 trade-in on a $35,000 car immediately reduces what you finance to $31,000 (before any additional down payment), which lowers your monthly payment and total interest. Be careful, though: if you still owe more on your current car than it's worth (negative equity), that difference gets rolled into your new loan — increasing the amount financed rather than reducing it. Always check your current loan's payoff amount against your trade-in offer before assuming it will help.
Choosing a loan term: 36, 48, 60, 72, or 84 months
Shorter terms (36-48 months) mean higher monthly payments but significantly less total interest, and you build equity in the vehicle faster — important since cars depreciate quickly. Longer terms (72-84 months) lower the monthly payment, which can make a more expensive vehicle feel 'affordable,' but they stretch interest costs over more years and increase the risk of being underwater (owing more than the car is worth) for a longer period. As a rule of thumb, try to keep your loan term short enough that you'll have positive equity by the time you might want to sell or trade in again — generally avoid terms longer than 60 months unless the payment difference is essential to your budget.
Is GAP insurance worth it?
Guaranteed Asset Protection (GAP) insurance covers the difference between what you owe on your loan and what your car is worth (its actual cash value) if it's totaled or stolen before the loan is paid off. It's most valuable when you have a small or no down payment, a long loan term (72+ months), or a vehicle that depreciates quickly — all situations where you're more likely to owe more than the car is worth for an extended period. If you put down 20% or more and choose a shorter term, you may build equity quickly enough that GAP coverage isn't necessary. GAP is often cheaper through your auto insurer than through the dealership, so it's worth comparing prices before financing it into your loan.
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Frequently Asked Questions
What credit score do I need for the best auto loan rate?+
Lenders generally reserve their lowest advertised rates for borrowers with credit scores of 720 or higher. Scores in the 660-719 range typically see moderately higher rates, and scores below 620 often face APRs in the high teens or twenties, if approved at all.
Should I get pre-approved before going to the dealership?+
Yes. A pre-approval from a bank or credit union gives you a known rate and budget before you negotiate, and it lets you compare the dealer's financing offer against an outside benchmark. Dealers can sometimes beat outside offers through manufacturer incentives, but you'll only know if you have something to compare against.
Is it better to lease or finance a car?+
Financing builds ownership equity and has no mileage limits, but typically costs more per month than leasing the same vehicle. Leasing offers lower payments and the ability to drive a newer car more often, but you never own the vehicle and face fees for excess mileage or wear. This calculator focuses on financing; leasing involves a different cost structure entirely.