Sarah T.
Nobody wants to pay more than they have to—especially when it comes to a car loan. That’s where your APR (Annual Percentage Rate) comes in. It’s the interest rate plus any lender fees, and it directly impacts how much you’ll pay over time. A lower APR on a car loan means smaller monthly payments and less spent on interest—savings that add up fast.
The good news? Even small changes to your credit, loan terms, or lender negotiations can lead to big financial wins. Let’s take a look at how you can drive down your APR and keep more money in your pocket.
How is the APR on a car loan calculated?
Let’s start with learning how APR is calculated in the first place. Your APR on a car loan is determined by combining your interest rate with any lender fees, then spreading that total cost across the loan term. Unlike a simple interest rate, APR gives you a clearer picture of the total cost of borrowing. Lenders use a formula that considers the principal loan amount, interest rate, and loan term to determine what you’ll pay in financing charges.
How APR affects your loan
A higher APR means you’ll pay more in interest over the life of your loan, increasing your total cost. A lower APR, on the other hand, helps reduce the amount you owe in interest and can make monthly payments more manageable. Even a small drop in APR can translate into significant savings over time.
What influences your APR on a car loan?
Several factors come into play when a lender determines your APR, including:
- Credit score: A higher credit score typically qualifies you for lower rates.
- Loan term length: Longer terms may come with higher APRs since lenders take on more risk over time.
- Vehicle type (new vs. used): New cars often have lower APRs than used cars due to lender incentives and depreciation factors.
- Down payment: A larger down payment can lead to a lower APR since it reduces the lender’s risk.
- Market interest rates: Rates fluctuate based on economic conditions, which can impact the APR lenders offer.
Seven effective ways to lower APR on a car loan
Here’s the good news—you have the ability to influence the APR that you will pay on your vehicle loan. Sure, you can’t control what’s going on in the broader economy, but you can take steps to improve your financial position. And when you do that, you become more lucrative to lenders, helping develop trust so that they are more open to offering you a loan at a more competitive rate.
So what do you need to do? Read on for the details.
- Improve your credit score
Lenders use your credit score to determine how risky you are as a borrower. The higher your score, the lower the APR on your car loan is likely to be. Taking advantage of some low-hanging fruit such as paying bills on time, lessening your outstanding debt, and disputing any errors on your credit report can make a significant difference. Even a small credit score increase can translate into better financing terms and long-term savings.
- Refinance your auto loan
If your credit score has gone up since you first got your car loan or if interest rates have decreased, refinancing could be a great way to lock in a lower APR. This process replaces your existing loan with a new one—ideally with better terms. As of February 2025, auto refinance rates range from 4.99% to 13.43%, depending on factors like loan term and credit score. If you originally financed your vehicle at 8% APR and refinance at 5%, you could save
hundreds—or even thousands—over time.
- Make a larger down payment
A larger down payment reduces the amount you need to borrow, lowering the lender’s risk. In return, they may offer you a lower APR. The general recommendation is to put down at least 20% on a new car and 10% on a used car. The more cash you can apply at the start of the loan, the less interest you’ll need to pay over the life of the loan.
- Shop around for lenders
Not all lenders offer the same APR, so it’s worth it to do your due diligence and compare rates from banks, credit unions, and online lenders. Many lenders provide pre-qualification options that allow you to check potential rates without impacting your credit score. By exploring multiple offers, you can find the most competitive APR and potentially use those quotes as leverage when negotiating.
- Choose a shorter loan term
While longer loan terms may come with lower monthly payments, they often carry higher APRs. Shorter terms, such as 36 or 48 months, typically have lower rates because lenders face less risk. While your monthly payment may be higher, you’ll save money in the long run by paying less in interest over time.
- Negotiate with your lender
Lenders have some flexibility when it comes to APR. If you have strong credit, a steady income, or competing offers from other lenders, don’t hesitate to negotiate. Whether you’re taking out a new loan or refinancing, asking for a lower rate—or for certain fees to be waived—could lead to better loan terms.
- Consider a co-signer
If your credit score isn’t high enough to secure a low APR on your own, adding a co-signer with good credit can help. A co-signer essentially guarantees the loan, reducing the lender’s risk. However, both parties should be aware that missed payments could impact both credit scores, so it’s important to have a repayment plan in place.
Check Car Refinance Rates with RateWorks
If you are looking to save money on the APR for your car loan, be sure to check out what we have to offer here at RateWorks. We’re in the auto refinance business, and our goal is to offer fair and competitive rates to our borrowers. Ready to get started? Request a free quote today.
