A bad Annual Percentage Rate (APR) for a car loan is generally anything significantly higher than the average rates for your credit tier. For most borrowers in the current market, an APR above 10% is considered unfavorable. However, the definition of "bad" is highly personal and depends critically on your credit score. APR is the total cost of borrowing, including interest and fees, expressed as a yearly rate.
Your credit score is the most significant factor determining your APR. Lenders use it to assess risk. The following table illustrates typical APRs for new car loans based on credit scores, using Q2 2024 data from credit reporting agencies like Experian. This shows how a "bad" rate is relative to what you could qualify for.
| Credit Score Tier | Average New Car APR | What's Considered a "Bad" APR for this Tier |
|---|
| Super Prime (781-850) | 5.61% | Anything above ~7.5% |
| Prime (661-780) | 7.03% | Anything above ~9.5% |
| Non-Prime (601-660) | 9.75% | Anything above ~12% |
| Subprime (501-600) | 12.28% | Anything above ~15% |
| Deep Subprime (300-500) | 14.78% | Anything above 18% |
Beyond your credit score, other factors can lead to a high APR. These include a short credit history, a high debt-to-income ratio, a long loan term (e.g., 84 months), and a small or no down payment. A "buy-here, pay-here" dealership might also offer rates well above 20% to buyers with challenged credit.
Getting stuck with a bad APR has real consequences. It dramatically increases the total amount you pay over the life of the loan. For example, on a $30,000 loan over 60 months, a 15% APR would cost you over $12,000 in interest, whereas a 7% APR would cost about $5,600. This significantly increases your monthly payment and can lead to negative equity, where you owe more on the car than it's worth.
If you're offered a bad APR, the best move is to shop around with other lenders like credit unions or banks, work on improving your credit score before applying, or consider a less expensive vehicle to reduce the loan amount.
