The Average Interest Rate on Cars for People With Average Credit

Auto loans make it more affordable to own the car of your dreams, but not without a price. Interest can add thousands to the cost of your car, so it's your financial responsibility to shop for the lowest rate. As with any loan, your credit score can raise or lower the interest rates available to you.

Average Credit

According to National Score Index, a website by Experian, as of 2011 the average credit score in the United States is 692. Since lenders prefer scores of 700 or higher, this is fairly high. Credit score averages vary between states, though, so your credit may be normal compared to your peers even if it's lower than the national average. For instance, the average credit score in Mississippi is 672; it's 719 in North Dakota.

Rate Variations

Your credit score can affect the rates lenders offer you on auto loans by as many as 3 percentage points, according to CreditReport.com. In addition, rates vary weekly and between locations. Bankrate provides tools on its website for you to check the average auto loan interest rates in your area and across the nation on a weekly basis. Compare rates in your ZIP code to those in nearby areas to determine whether it's worth driving farther for a better deal.

Prime Rate

While interest rates vary by location, they are all based on the prime rate as reported by "The Wall Street Journal." The prime rate is based on the federal funds rate, set by the Federal Reserve. Unless you have above-average credit, the interest rate you receive on an auto loan will likely be higher than the prime rate.

Getting Lower Rates

Aside from shopping around, your greatest chance of getting a low interest rate on an auto loan is to improve your credit. CBS's "The Early Show" suggests raising your score to at least 720 to get the lowest rates. Since credit scores only go as high as about 850, lenders treat a 720 the same as they would a higher score. Making timely payments on your credit accounts is the single most helpful thing you can do to improve your credit.

Get a free copy of your credit report from AnnualCreditReport.com, or buy your report and score from one of the leading credit reporting agencies, to see where you stand. You can buy your report and score from TransUnion, Equifax or Experian for less than $20 as of 2011.