Car Loan Interest Rates in May 2026: What You Need to Know

Ignacio Kunze
Published May 8, 2026

Current Average Rates

If you're looking to buy a car, here's what you can expect to pay in interest:

  • New cars: Around 7% interest rate
  • Used cars: Around 11% interest rate

Good news: If you have excellent credit, you might be able to get a rate below 5%.

Why Your Credit Score Matters

Your credit score is a three-digit number that shows lenders how well you've managed money and debt in the past. It's one of the biggest factors that determines what interest rate you'll pay on a car loan.

Here's how it breaks down:

Credit Score What You Can Expect
Excellent Around 4.66% or lower
Poor Could be 21.85% or higher

The difference is huge. Someone with excellent credit could pay thousands of dollars less over the life of their loan compared to someone with poor credit.

Other Factors That Affect Your Rate

Your credit score isn't the only thing lenders look at. They also consider:

  • Your income: Can you comfortably afford the monthly payments?
  • Your debt-to-income ratio: How much other debt do you have?
  • Loan amount: Borrowing more money may mean a higher rate
  • Loan length: Longer loans typically have higher rates
  • Type of car: New cars usually get better rates than used cars
  • Vehicle type: Some cars (like sports cars) may be seen as riskier

Tips to Get a Better Interest Rate

1. Improve Your Credit Score

  • Pay your bills on time
  • Pay down existing debt
  • Avoid opening new credit accounts before car shopping
  • Check your credit report for errors and fix any mistakes

2. Shop Around

Compare rates from different lenders, including:

  • Banks
  • Credit unions
  • Online lenders
  • Dealer financing

Many lenders let you check rates without hurting your credit score. Aim to get quotes from at least three to five lenders.

3. Make a Down Payment

Putting money down or trading in your current vehicle can lower the amount you need to borrow, which may help you qualify for a better rate.

4. Choose a Shorter Loan Term

While a 72 or 84-month loan gives you lower monthly payments, a shorter loan (like 48 months) often comes with a lower interest rate. You'll pay more each month, but you could save hundreds of dollars overall.

5. Consider a Cosigner

If your credit isn't great, a cosigner with good credit might help you get a lower rate. Just remember that the cosigner is responsible for the loan if you can't pay.

What About Refinancing?

Most car loans have fixed interest rates, meaning your rate stays the same for the entire loan.

However, if your credit improves or rates drop, you can look into refinancing to potentially get a better deal and save money on interest.

-

Get the latest on auto loan relief and other tips by subscribing to our weekly newsletter here!

Related Articles

Car Loan Interest Rates in May 2026: What You Need to Know...

Current Average Rates If you're looking to buy a car, here's what you can expect to pay in interest: New cars: Around 7% interest rate Used cars: Around 11% interest rate Good news: If y...

Can You Deduct Car Loan Interest on Your Taxes? Here's What You Need to Know...

If you're buying a new car and taking out a loan to pay for it, there's good news: you might be able to save money on your taxes. Thanks to the One Big Beautiful Bill Act (OBBBA), som...

State Stimulus Checks: Who Will Receive Payments in 2026?...

State governments across the U.S. have slowed down on sending out stimulus checks or direct rebates in 2026. Much of the aid being given out now is tied to programs that started in previous years or to existing...

New Tax Break: How to Deduct Your Car Loan Interest...

This tax season, many Americans may be able to lower their tax bill thanks to a new deduction for interest paid on car loans. This change was introduced by a law called the "One Big Beautiful Bill Act." If ...

Refinancing Your Auto Loan with Navy Federal...

If you’re looking to lower your monthly car payments or save money on interest, refinancing your auto loan with Navy Federal Credit Union could be a great move. Currently, they are offering a $200 bonus if you switch ...

Gas Prices Jump Globally as Conflict in Middle East Intensifies...

Drivers around the world are waking up to much higher prices at the gas pump. In the United States, the average price for a gallon of gas jumped 11 cents in a single night, reaching about $3.11 per gallon. ...