3 Years of Payments: Understanding 36 Month Auto Loan Interest Rates

A 36 month auto loan is a common financing option for purchasing a new or used car. The loan term is for 3 years, which provides more affordable monthly payments compared to shorter term loans. The interest rate on a 36 month auto loan can vary considerably based on your credit, the vehicle, and other factors.

The purpose of this article is to provide an overview of current interest rates for 36 month auto loans and discuss the key factors that impact what interest rate you may qualify for. We’ll look at how elements like your credit score, the vehicle price, down payment amount, and lender can influence the rate you are offered. Understanding these components can better position you to find the most competitive 36 month financing when shopping for your next car.

Current Interest Rates

The current average interest rate for a 36 month auto loan in the United States is around 5-7%, though rates can vary significantly depending on your financial situation. According to Bankrate’s latest auto loan survey, the average 36 month new car loan rate is 5.07%, while the average used car loan rate is 6.24%. Data from the Federal Reserve shows the average interest rate for a new car loan was 5.5% as of Q3 2022, while the average used car rate was 7.2%.

LendingTree’s auto loan calculator estimates rates between 3.99% – 9.99% for 36 month loans depending on credit score. For borrowers with excellent credit (scores above 760), current rates are averaging around 4-5% at many banks and credit unions. Those with good credit in the 690-759 range are seeing average rates of 5-7%, while subprime borrowers are getting rates of 8% or higher. Overall the current market offers historically low interest rates, though the Federal Reserve’s rate hikes in 2022 have caused rates to increase from their pandemic lows.

Factors That Influence Rates

When applying for a 36 month auto loan, there are several key factors that influence the interest rate you will receive.

Credit Score – Your credit score is one of the most important factors lenders use to determine your interest rate. The higher your credit score, the lower the rate you will qualify for, as you are seen as less risky. With excellent credit (scores above 720), you can expect to get the best rates. With fair credit (scores in the high 500s to low 600s), rates will be significantly higher.

Loan Term – Opting for a shorter loan term, like 36 months, will generally get you a lower rate than longer terms like 60 or 72 months. The quicker the repayment, the less risk for the lender.

Down Payment % – The size of your down payment makes a difference. Putting 20% or more down signals you are financially stable and lowers the amount being financed, leading to better rates. Smaller down payments mean the lender is taking on more risk.

Loan Amount – In most cases, the larger the loan amount, the higher the interest rate. Lenders view large loans as riskier with more potential for default. Smaller loan amounts tend to get better rates.

New vs. Used Car – New cars tend to get slightly better rates than used cars, as they hold their value better. However, used car rates from dealerships are often subsidized to move inventory.

Credit Score Impact

Your credit score is one of the biggest factors lenders consider when determining your interest rate for an auto loan. In general, the higher your credit score, the lower your interest rate will be. This is because lenders view borrowers with excellent credit as lower risk, so they reward those borrowers with better rates.

For example, someone with a credit score of 780 could expect to receive interest rates around 3-4% for a 36-month new car loan. However, someone with a poor credit score of 580 would likely see interest rates from 8-12% or higher from most lenders.

The range between those two credit scores represents over $2,500 in extra interest paid on a $25,000 loan over 3 years. That’s why it’s so critical to understand your credit score and take steps to improve it if needed before applying for an auto loan. Even a small increase of 50 points could make a noticeable difference in the rate you are offered.

Monitoring your credit reports and scores from all three bureaus is advisable in the months leading up to car shopping. This allows time to correct any errors that may be dragging down your scores. Reducing balances on credit cards and other revolving debt can also help bump up your credit rating.

The higher you can get your credit score, the better position you’ll be in to qualify for the lowest interest rates available from lenders and save significantly over the life of your next auto loan.

New vs. Used Vehicle Rates

New vehicles tend to have lower interest rates compared to used vehicles. This is because new cars carry less risk for lenders. A new car has no history of previous owners, accidents, or mechanical issues. The car’s value also depreciates less quickly in the first few years.

On a 36-month auto loan, interest rates for new cars average around 4-7%, while used car rates are 6-10%. The exact rate difference depends on the vehicle specifics like make, model, mileage etc. Luxury brands and highly sought after models will have lower rates for used versions versus basic transportation cars.

In general, buyers with good credit can expect to see interest rates 1-3% lower for a new vehicle compared to a similar used version. The rate gap narrows the older the used car is. For example, a 1-year old used car may have rates just 1% higher than new, while a 4-year old used car could have a 3% higher rate.

It’s important to get pre-approved and compare new vs used rates from lenders. Sometimes the rate difference is minimal and a used car is the better value. Run the numbers to see if lower depreciation on a new car offsets the interest rate difference. For buyers with poor credit, used car rates are usually better regardless.

Down Payment Effect

The size of your down payment can have a noticeable impact on the interest rate you receive for a 36 month auto loan. This is because a larger down payment lowers the amount you need to finance, which reduces the lender’s risk.

With a smaller loan amount, the lender does not have to worry as much about the borrower defaulting or being underwater on the loan. As a result, lenders are often willing to offer lower rates to borrowers who make larger down payments.

For example, someone who puts 10% down may get a 5% interest rate, while someone with 20% down could potentially get a 4% rate. The more money you put down upfront, the better position you are in to secure a competitive interest rate.

Aim to put down at least 20% if possible. This will show lenders you are committed to the purchase and get you the best rates. Even an extra few percentage points on your down payment can make a noticeable difference.

Run some calculations to see how much you can afford for the down payment. Paying more now will save substantially on interest charges over the life of the 36 month loan. A larger down payment is one of the most effective ways to reduce your auto loan interest rate.

Dealership vs. Bank/CU Rates

Dealerships and banks/credit unions often offer different interest rates on auto loans. Here’s a look at some key differences:

  • Dealerships may offer promotional rates to move inventory, while banks/CUs offer more standardized rates based on credit. Dealership rates may be lower, but are not always the best option.

  • Dealerships make money on financing, so they may not offer the lowest rates unless you have excellent credit. Banks/CUs compete on rates, so may offer lower rates for good credit.

  • Dealerships get incentives from lenders to sign you up for financing. So you may get a better rate through a bank/CU direct loan.

  • Dealerships can only offer loans from their affiliated lenders. Banks/CUs work with multiple lenders and can shop for the best rate.

  • Dealerships want to close the deal, so may pressure you into accepting their financing without shopping rates. Going through a bank/CU ensures you get pre-approved for the best rate.

The bottom line is that dealership financing can sometimes get you a good rate, but it’s wise to also check rates from banks and credit unions. A little rate shopping can save a lot over the long run.

Pre-Approval Importance

Getting pre-approved for an auto loan before visiting dealerships to shop for a vehicle has several key benefits:

  • Stronger negotiating position – Being pre-approved shows you are a serious buyer and puts you in a better position to negotiate the purchase price, interest rate, and other terms with the dealer. The dealer knows you already have financing secured at a certain rate.

  • Faster buying process – With a pre-approval letter in hand, you can finalize the deal more quickly since the financing is already lined up. The dealer just needs to confirm the pre-approved terms. This saves time spent applying and waiting for financing at the dealership.

  • Wider selection – Pre-approval allows you to look at multiple vehicles within your budget across different dealers confidently, rather than limiting yourself to what you think you can afford. You already know your budget and rate based on the pre-approval.

  • Avoid dealer financing – Dealers often try to get buyers to use their in-house financing, which may not offer the best rates and terms. Pre-approval locks in competitive financing so you don’t end up with a higher rate from the dealer.

  • Comparison shopping – By getting pre-approved from banks/credit unions, you can compare their rates and terms to find the best offer. Dealers know they have to beat the pre-approved rate.

  • Strong credit history – The pre-approval credit checks will show up on your history, which looks positive and shows you are rate shopping for a major purchase. As long as all the checks are within a short period, they are generally counted as one inquiry.

In summary, taking the time to get pre-approved makes for an easier, faster buying experience and puts you in control when negotiating with the dealer. It’s highly recommended to pre-approve financing before visiting dealerships.

Interest Rate Negotiation

Negotiating a lower interest rate on an auto loan is possible in many cases. Here are some tips to get the best rate:

  • Improve your credit score. Lenders offer better rates to borrowers with higher credit scores. Before applying for a loan, check your credit reports for errors and pay down balances on credit cards. A score over 720 will unlock the lowest rates.

  • Get pre-approved financing. By having a pre-approval letter from your bank or credit union, you enter negotiations with leverage. The dealer will likely try to beat the rate you already have.

  • Compare rates from multiple lenders. Don’t just accept the rate the dealer offers. Shop around at banks, credit unions, and online lenders to find the most competitive rate. Bring these other offers to the negotiating table.

  • Ask for the buy rate. This is the wholesale rate the dealer can access. Negotiate down from this underlying rate, rather than the higher rate they start with.

  • Offer to buy down the rate. You may be able to pay points upfront to reduce the interest rate. Crunch the numbers to see if this makes sense long-term.

  • Negotiate other aspects to win on rate. Be flexible on vehicle price, down payment, or trade-in value if needed to get the dealer to come down on interest rate.

  • Secure financing before negotiating vehicle price. This prevents the dealer from making up profit through a higher interest rate.

With preparation and negotiation tactics, you can often reduce the interest rate substantially on an auto loan, saving a lot over the loan term.

Closing Thoughts

When it comes to getting the best 36 month auto loan interest rate, the most important factors to consider are your credit score, the age of the vehicle, how much you’re able to put down, and where you get pre-approved. The higher your credit score, the lower your interest rate will be. New vehicles tend to have lower rates than used ones. The more money you put down, the better your rate will be. And make sure to shop around with banks, credit unions, and dealerships and negotiate for the best rate once pre-approved.

The takeaways are:

  • Boost your credit score as much as possible before applying for a loan
  • Consider putting more money down if you’re able to
  • Compare rates from multiple lenders after getting pre-approved
  • Negotiate the interest rate with the dealer once you have financing secured

The best rates go to those with excellent credit who put down a larger down payment. But even if you don’t have perfect credit or lots of cash upfront, you can still get a competitive rate by shopping around and negotiating. The most important thing is to educate yourself on the process and know your options before stepping foot in the dealership.

Leave a Comment