The monthly payment on a new car is finally moving in the right direction.
The average interest rate on a new-vehicle loan slipped to 6.5% in the final quarter of 2025, the lowest reading since early 2022, according to data tracked by Edmunds.
Used-car rates are easing too, dipping below 11% for the first time in nearly four years.
A single percentage point on a $40,000 loan over five years saves roughly $1,000 in interest.
For a household already squeezed by grocery bills and rent, that's a real chunk of change — enough to cover several months of groceries.
The move follows the Federal Reserve's rate cuts over the past year, which lowered the cost of money across the board.
Lenders, feeling more confident about defaults, have started competing for borrowers again.
Some automakers are layering in subvented financing — promotional rates as low as 0% to 1.9% on slow-selling models — to move inventory off dealer lots.
But here's the catch: those teaser rates almost always require top-tier credit, usually a score above 740.
Buyers with scores in the 600s are still staring at rates north of 12% on used cars, and subprime borrowers can face APRs above 15%.
The gap between the best and worst offers has rarely been wider.
The average new vehicle now sells for just under $49,000, and the average used model runs about $26,000.
So even with cheaper money, buyers are financing larger amounts than they did five years ago.
Longer loan terms — 72 and 84 months — have become the norm, which means paying interest for a bigger slice of the car's life.
If you're shopping in the next few months, a few moves can save you real money.
Get preapproved at a credit union before you walk into a dealership; their rates often beat captive lender offers, and the preapproval gives you leverage to negotiate.
Check your credit report for errors now, since even a small score bump can move you into a better tier.
And never negotiate the monthly payment — negotiate the out-the-door price, then let the financing follow.
Dealers make a lot of their profit in the finance office, where they can mark up the rate a lender quotes them.
Ask for the "buy rate" and compare it to your preapproval.
There's always another dealer, and right now there's plenty of inventory to choose from.
If inflation flares again or the Fed pauses its cuts, rates could plateau or tick back up.
Automakers have also been warning that tariffs on imported parts could push sticker prices higher later this year.
For anyone who has been holding off on a purchase, the math is finally tilting in your favor — but only if your credit is in shape and you do the homework before you sit down at the desk.
The bottom line: cheaper loans are a genuine break for stretched budgets, but they reward the prepared.
Final Thoughts
Walking in with a preapproval and a firm price target beats hoping the dealer does you a favor.