Car Loan FAQ: Answers to the Most Common Questions

What are the requirements for getting a car loan?

Lenders look at several factors to decide whether to approve a car loan and at what rate. Your credit score is a major factor, but lenders also consider your income, debt-to-income ratio, and employment history. A higher credit score typically qualifies you for lower interest rates.

Some lenders prefer a debt-to-income (DTI) ratio of 15% or less for a car loan. This means your monthly car payment and other debts should not exceed 15% of your gross monthly income. A common preference is a down payment of at least 20%, which reduces the amount you need to borrow and may improve your loan terms.

Sources: Argent Credit Union, Experian, Energy One Federal Credit Union, Auto Fanatics USA

How much can I borrow for a car loan?

The amount you can borrow depends on your income, credit score, and the lender's policies. Lenders assess your ability to repay by looking at your debt-to-income ratio and the loan amount relative to the car's value. While there is no single maximum, a common guideline is to keep your total monthly debts, including the car payment, at 15% or less of your gross monthly income.

Your down payment also affects how much you need to borrow. A larger down payment reduces the loan amount and can help you avoid being upside-down on the loan, where you owe more than the car is worth.

Sources: Argent Credit Union, Auto Fanatics USA

What is the average car loan interest rate?

Car loan interest rates vary based on the type of loan (new or used), your credit score, and the overall market. As of Q1 2026, the average interest rate for a new car loan in the U.S. was 6.39%, and for a used car loan it was 11.43%.

Rates are heavily influenced by your credit score. According to Experian data, new car loan APRs in Q1 2026 ranged from 4.55% for borrowers with super prime credit (781+) to 16.01% for those with deep subprime credit (300-500). Used car loan APRs ranged from 6.30% for super prime to 21.77% for deep subprime.

Remember that the APR includes not just the interest rate but also loan fees, giving you a more complete picture of the loan's cost.

• New car average: 6.39% (Q1 2026)
• Used car average: 11.43% (Q1 2026)
• Rates vary significantly by credit score

Sources: Experian, Bankrate

How does my credit score affect a car loan?

Your credit score is one of the most important factors in auto loan approval and pricing. A higher credit score typically means lower interest rates and better loan terms, while a lower score can result in higher rates or even difficulty getting approved.

Used car loan rates follow a similar pattern but are higher across all credit tiers.

Sources: Experian, Argent Credit Union, Energy One Federal Credit Union

What fees are associated with car loans?

Car loans can come with several fees beyond just the interest. Common fees include application fees, origination fees, documentation fees, title and registration fees, and possibly credit insurance. These fees are often included in the loan's APR, so comparing APRs can help you understand the total cost.

Be sure to ask your lender for a full list of fees before signing any agreement.

• Application fees
• Origination fees
• Documentation fees
• Title and registration fees
• Credit insurance (optional)

Sources: Argent Credit Union

Can I pay off a car loan early?

Yes, you can typically pay off a car loan early to save on interest. However, it's important to check whether your loan includes a prepayment penalty, which is a fee charged for paying off the loan before the end of the term. Some lenders do charge prepayment penalties, so you should confirm with your lender before making extra payments.

Paying off a loan early can reduce the total interest you pay over the life of the loan, but make sure there are no penalties that would offset those savings.

Sources: Argent Credit Union

What happens if you default on a car loan?

Defaulting on a car loan has serious consequences. When you take out an auto loan, the lender holds a lien on the vehicle, giving them the legal right to repossess the car if you don't keep up with payments or follow the contract terms. Missing multiple payments can cause fees to be added and your credit score to drop, and repossession will appear on your credit report.

If you are having trouble making payments, contact your lender immediately. They may offer hardship options such as payment extensions, payment plans, or due date changes to help you avoid default. There are also special protections for active duty servicemembers under the Servicemember Civil Relief Act (SCRA), which can prevent repossession without a court order for loans taken out before entering military service.

Sources: National Credit Union Administration (NCUA), Consumer Financial Protection Bureau

How to get a car loan with no credit?

Getting a car loan with no credit history is challenging but not impossible. Without a credit score, lenders may rely on other factors such as your income, employment history, and debt-to-income ratio. Lenders may have different policies for borrowers without a credit history; contact them to learn what documentation or terms they require.

Ask lenders directly about options for borrowers with no credit history, and compare offers from banks, credit unions, and other lenders.

Sources: Argent Credit Union, Auto Fanatics USA