APR, or Annual Percentage Rate, is the total cost of borrowing money for a car loan expressed as a yearly rate. It includes the interest rate plus certain fees, giving you a more complete picture of the loan's true cost than the interest rate alone. When you see a dealership advertise a low interest rate, the APR is the number you should focus on to compare different loan offers accurately.
The APR is calculated by taking the interest rate and adding in fees like origination fees or loan processing fees that the lender charges. This is why two loans with the same interest rate can have different APRs. A lower APR means you'll pay less over the life of the loan. For example, on a $30,000 loan over 60 months, a difference of just 1% in APR can save you hundreds of dollars.
Your APR is determined by several key factors, with your credit score being the most significant. Lenders use your credit history to assess risk. The following table illustrates typical APRs based on credit tiers, though rates can vary by lender and market conditions.
| Credit Tier | Credit Score Range | Estimated New Car APR (Example) |
|---|
| Super Prime | 781 - 850 | 3.5% - 5.0% |
| Prime | 661 - 780 | 5.0% - 7.0% |
| Non-Prime | 601 - 660 | 8.0% - 12.0% |
| Subprime | 501 - 600 | 12.0% - 18.0% |
| Deep Subprime | 300 - 500 | 18.0%+ |
Other factors include the loan term (shorter terms often have lower APRs), the vehicle's age (new cars typically have lower rates than used), and the economic environment. It's also a key point of negotiation. Dealerships can often mark up the APR from the rate the bank gives them, so knowing your own pre-approved rate from a bank or credit union gives you a strong bargaining position. Always check the APR listed on your loan documents before signing to ensure it matches what you agreed upon.
