Is 5.9% APR a bad rate on a car loan?


If you buy a car at 5.9% APR, you might get a bad deal. In truth, whether this is a good or a bad rate will depend on various factors such as your credit history, the length of the loan and whether you are buying a new or used car. Here we will focus on manufacturer incentives for buying a new car or truck.

On a 36 month loan, an APR of 5.9% with above average credit is a bad rate. If you see such a high rate with captive financing, it may be because it is a longer term loan. For example, Ford Credit’s best 75-month rate on the popular Bronco Sport is 5.9% APR. On the Mustang, there’s even an 84-month APR deal at 5.9%.

Longer loans generally have higher rates than shorter loans. In some cases, manufacturers may limit their best deals to short-term options like 36 or 48 month financing. These rate offers may be tempting with the prospect of interest-free financing, but may not be appropriate if you’re looking to lower your payment.

While 84-month loans aren’t a good idea for everyone, longer loans can save consumers money when rates are low. Unfortunately, a 5.9% interest rate for 7 years on a $40,000 car would translate to over $8,900 in interest. As a result, this $40,000 car would cost almost $49,000 before taking into account taxes and fees.

For a buyer with subprime credit, a rate of 5.9% could be a bargain. This is because our records show that subprime auto loans are often around 13%. If you have a credit score below 670, chances are you should work with a bad credit dealer or take advantage of subprime credit financing programs.

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