Average Loan Interest Rates for Used Cars in 2025: How Your Credit Scores Influence Them
Despite the ongoing inflation in the U.S. economy pushing up APRs, there is still a possibility of securing a lower rate on your used car purchase, depending on your credit scores. Today, we will explore how your credit scores impact the interest rate you are offered on a loan for an Indianapolis used car and offer tips on securing the most favorable rate in Indiana.
Average Used Car Loan Rates Based on Your Credit Scores in Indiana
The volume-weighted average rates were 9.68% for new cars and 14.72% for used cars, as reported by Cox Automotive on March 18, 2025. However, your credit scores significantly influence your interest rate. Generally, the higher your scores, the more favorable your loan rate will be.
Lenders evaluate your credit profile when you apply for an auto loan to gauge your repayment behavior. If your credit score is low, lenders perceive a higher possibility of default on the loan, prompting them to offer a higher interest rate to mitigate this risk.
Below are the average auto loan rates received by borrowers in the 4th quarter 2024, categorized by Experian credit score ranges:
| FICO Score | Average used car rate |
|---|---|
| 300 - 500 | 21.81% |
| 501 - 600 | 19.38% |
| 601 - 660 | 14.46% |
| 661 - 780 | 9.95% |
| 781 - 850 | 7.67% |
The cost disparity between a good and a bad credit auto loan can be substantial.
What credit score is required for an auto loan in 2025?
All lenders may have their own requirements for the scores needed to qualify for a car loan. Typically, borrowers with scores of 670 or higher on the FICO scale are eligible for the best rates and terms.
Other Factors That Influence Your Loan Interest Rate
Your credit score is not the only determinant that lenders take into account. They evaluate the following factors to assess your eligibility and determine the interest rate for a used car loan:
- Vehicle: Newer vehicles or low-mileage ones often qualify for more beneficial interest rates, as they are perceived as more reliable.
- Credit profile: Lenders consider your previous payments, credit history length, and debt-to-income ratio. These data indicate your creditworthiness and ability to repay the loan in time.
- Loan term: Shorter-term loans have lower interest rates because a shorter period means less risk to the lender.
- Loan amount: Some lenders offer better rates for smaller loans as they bear fewer risks.
- Down payment: You can cut the loan amount by providing a solid down payment, potentially resulting in a lower rate. Additionally, a significant down payment decreases the likelihood of default and repossession.
- Market rates: Any changes in the Federal Reserve's target interest rate affect the borrowing costs for lenders, impacting the interest rates offered to borrowers.
- Lender Competition: The level of competition between lenders can alter the rates they offer. When multiple lenders compete for borrowers' business, they may lower their interest to gain a competitive advantage. It's always worth shopping around to compare financing offers from several banks and dealerships to get the best rate for your used car loan. Online comparison tools and platforms can streamline the process and give you a range of options.
Is it possible to negotiate the interest rate?
In most cases, the interest rate on a used car loan is open to negotiation. This is especially true when obtaining financing through a dealership. They are your real partners in working with the financial organization, and instead of asking as an individual, you become a member of the strong partnership for whom the bank is ready to provide additional benefits. Nevertheless, it's highly advisable to compare the rate with offers from other dealers and credit unions, for example, Plenti, to be sure you get the best offer.
How to Boost Credit Scores and Secure Lower Auto Loan Rates
If you're dealing with a bad credit score and facing elevated interest rates, there are measures you can implement to enhance your credit:
- Make payments on time: Regular payments within due terms can gradually improve your credit score.
- Cut credit card balances: Decreasing your credit card balance can enhance your credit use ratio, positively affecting your scores.
- Check your credit reports: Monitoring your credit reports from time to time for inaccuracies or fraudulent activities can help ensure an accurate credit score.
- Explore secured or co-signed loans: If your credit score is far from ideal, consider alternative options like having a co-signer.
- Consider refinancing options if you currently hold a loan with a high rate. Refinancing to a lower rate may be possible, especially if market rates have decreased or your credit score has improved. Refinancing can bring you savings only if you maintain a similar term length. Extending the term may lower your monthly payments, but it may also mean paying more interest over a longer period, potentially offsetting any savings from the lower rate.
Whether your credit is good or bad, you can qualify for a car loan with Indy Auto Man, and we'll find the optimal terms for your purchase. Explore our inventory of over 300 used models to find the car that perfectly fits your budget using our convenient online car loan calculator.
