After nearly three years of punishing rates, auto loan borrowers are catching a break.
The average rate on a new car loan slipped to 6.8% in the first quarter of 2025, down from a peak of 7.3% in late 2023, according to data from Edmunds.
Used car rates have followed a similar path, easing from 11.9% to around 11.4%.
On a $35,000 new car loan financed over 60 months, the difference between 7.3% and 6.8% works out to roughly $500 in interest saved over the life of the loan.
Not life-changing, but not nothing either.
The Federal Reserve's rate cuts in late 2024 finally worked their way into the auto lending market.
Banks and credit unions, flush with deposit competition cooling off, are passing some relief to borrowers.
The average rate on a 60-month new car loan at a credit union now sits near 5.9%, well below what most dealerships will offer through their captive finance arms.
Sticker prices haven't come down nearly as fast.
The average transaction price for a new vehicle hovered around $48,000 in early 2025, still roughly 20% higher than pre-pandemic levels.
So while your interest rate is lower, you're still financing a bigger number than you would have five years ago.
A lower rate on a more expensive car can leave you paying more per month than you did when rates were higher.
Meanwhile, delinquencies are flashing warning signs.
Auto loan payments 60 days or more past due hit their highest level since 2010, according to Fitch Ratings.
Subprime borrowers are feeling the squeeze hardest.
If you're shopping with a credit score below 620, expect rates north of 15%, regardless of what the Fed does.
The smartest move right now is to get pre-approved before you ever set foot on a lot.
Credit unions and online lenders like Capital One and LightStream typically offer lower rates than dealer financing, and having a pre-approval letter in hand gives you leverage to negotiate.
Dealers make money on the financing, not just the car, so they'll often match or beat a competing offer if you push.
Also worth noting: the average new car loan term has stretched to 68 months, with some stretching past 84.
Longer terms lower your monthly payment but increase total interest paid and leave you upside down on the loan longer.
If you can afford a 48- or 60-month term, take it.
Refinancing is another option more people should explore.
If you bought a car in 2022 or 2023 when rates peaked, you may be able to shave 1-2 percentage points off your loan now.
Most lenders allow refinancing after six months, and the savings can run into the thousands over the remaining term.
The bottom line is that the auto loan market is thawing, but it's not a free-for-all.
Rates are better than they were, prices are still elevated, and lenders are being pickier about who they approve.
If you've been waiting on the sidelines, this is a reasonable moment to start shopping — just don't let a lower rate talk you into a bigger loan than you need. **Our take:** The rate relief is welcome, but it's a modest tailwind, not a game-changer.
The real lever for most buyers is the total financed amount and the loan term, not the headline APR.
Final Thoughts
Shop the loan as hard as you shop the car, and you'll come out ahead either way.