As the economy improves, many people start looking into buying a new or used car. Most people have to finance at least a portion of the purchase price. This means they will be charged interest, which raises the total price of the car. Therefore, many people wonder what is the average interest rate on car loans?

The answer to this question is somewhat complicated. This is because the average figure fluctuates from week to week based on car sales in the previous week. In addition, it is exceedingly rare for anyone to receive a loan at the average interest rate. However, we shall look at the week that ended 24 March, 2011.

One variable that affects interest rates is whether the car is a new or used model. The length of the financing contract is also a variable that changes the average figures. For example, a new automobile financed for 48 months carried an average rate of 5.62 percent while financing the same automobile for 60 months cost a bit more at 5.68 percent. A used car financed for just 36 months would cost an average of 6.66 percent in interest.

Banks and other lenders base the amount of interest charged on other factors as well. One’s credit score is a prime example. People with excellent credit, a rare commodity these days, can get financing with as little as zero percent interest while those with very poor credit might be charged as high as 19 percent interest. However, knowing the current average rates can help one to negotiate for better terms.

Another major factor that can affect how much interest one is charged is the percentage of the purchase that is financed. Individuals that are able to put together a substantial down payment are often rewarded with more favorable rates than those who seek to finance virtually the entire purchase price. It is, therefore, in one’s best interests to have a valuable trade-in or a large cash amount on hand when negotiating a contract.

These averages are subject to change with little or no notice based on current financial reports and the number of problems reported with different car lines. One could easily expect to be charged more when purchasing a vehicle that has a higher percentage of reported problems because these a higher risk for lenders that buyers will walk away from the loan if the vehicle breaks down.

The average interest rate for car loans is a handy figure to have on hand when looking to purchase a new or used vehicle. It can be used as a tool to bargain for a better deal when negotiating a finance contract. However, one must be aware of the many variables that shape this figure and how they pertain to the specific situation.

Whether a vehicle is new or used, the length of time it will be financed, the percentage of the purchase price financed, and the credit score of the buyer will all determine just how much a person must pay above or below that figure when buying an automobile.

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