Is 3.9% a Good Car Loan Rate? What You Need to Know

Getting a new or used car is an exciting experience. But financing your vehicle purchase can be stressful, especially when it comes to getting a good interest rate on your auto loan. You may see advertised rates like 3.9% and wonder – is this actually a good rate or not?

The answer depends on several factors. In this comprehensive guide, we’ll break down everything you need to know to determine if 3.9% is a good interest rate for your auto loan.

What Does a 3.9% Interest Rate Mean for Your Monthly Payment?

To understand if 3.9% is a good rate, you first need to see how it impacts your monthly payment. Let’s look at a $30,000 car loan over 5 years:

• At 3.9%, your monthly payment would be around $575
• At 2.9%, your monthly payment would be approximately $550
• At 1.9%, your monthly payment would be around $525

As you can see, the difference between a 39% rate and a lower rate of 19% is about $50 per month. Over the life of a 5-year loan, that adds up to $3,000 more in interest paid with the higher 3.9% rate.

So while 3.9% may seem low compared to double-digit interest rates it still results in paying thousands more compared to the best rates below 2%.

What Credit Score Do You Need for 3.9% Financing?

The most important factor in determining your car loan interest rate is your credit score. The higher your score, the lower the rate lenders will offer.

Here’s a breakdown of the credit scores needed for a 39% auto loan

• Excellent credit (760+ score): 3.9% is possible but not the best rate available. You should qualify for 2-3% instead.

• Good credit (700-759 score): 3.9% is a decent rate for this credit range. You may be able to get 3-4% from some lenders.

• Fair credit (640-699 score): 3.9% is a very good rate for fair credit borrowers. Expect rates of 5% or higher instead.

• Poor credit (below 640 score): You will not qualify for a 3.9% rate. Expect 8% or higher with poor credit.

As you can see, a credit score of 700 or higher is generally needed for a 3.9% auto loan rate. If your score is in the fair or poor range, 3.9% would be an excellent rate, but lenders will likely offer you much higher interest instead.

When Is 3.9% Considered a Good Rate?

In general, a 3.9% interest rate on an auto loan is good if you have fair or average credit. With excellent credit, you should qualify for lower rates of 2-3% from most lenders.

Here are some scenarios when 3.9% can be considered a good rate:

• Your credit score is between 650-700.
• You’re purchasing an older used car (5+ years old).
• It’s a 72 or 84 month loan term. The longer the term, the lower the rate.
• The lender is offering lower rates due to COVID-19 relief measures.
• You receive a loyalty discount for having a previous loan or other accounts with the lender.

The make and model of vehicle can also impact rates. Currently, luxury brands like Mercedes and BMW often offer reduced interest financing around 3-4% as purchase incentives.

When Should You Avoid a 3.9% Car Loan?

While 3.9% may be a good rate for some, there are situations where you should avoid it if possible:

• You have excellent credit (760+ score) – you should qualify for 2-3% financing
• It’s a short loan term (36 months or less) – shorter terms have higher rates
• There are other lower rate offers available from other lenders
• The vehicle has a high interest rate markup from the dealer

The best way to avoid potentially high rates is to get pre-approved financing from a lender like your bank or credit union before negotiating with the dealer. This gives you bargaining power to resist excessive interest markups.

Tips for Getting the Best Auto Loan Rate

Follow these tips to ensure you get the lowest interest rate possible on your next auto loan:

• Check your credit score – gives you an idea of rates to expect before applying
• Get pre-approved financing – locks in a rate and provides leverage when negotiating
• Compare lender rates – check rates from banks, credit unions, and online lenders
• Opt for shorter loan terms – reduces the total interest paid over the life of the loan
• Make a larger down payment – loans with higher down payments carry lower interest rates

By following these steps, you can determine if an offered 3.9% rate is your best option or if you can qualify for lower financing. Knowing your credit score along with current average rates is key to getting the lowest rate and saving the most money.

The Bottom Line

While 3.9% may seem like a reasonably good rate at first glance, make sure to compare it to average rates for your credit score range to determine if it’s truly a good deal. An interest rate of around 4% could cost you thousands more over the loan term compared to more favorable financing under 3% for well-qualified borrowers.

Use this article as a guide on what credit score is needed to obtain a 3.9% car loan rate and when it can be considered a good rate versus when to negotiate for better financing. Check your credit, research average rates, and shop multiple lenders to put yourself in the best position to get the lowest auto loan interest rate possible.

Average Auto Loan Rates by Credit Score