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You don’t have to spend a lot to finance your vehicle when you know how to avoid interest on your car loan. With the average vehicle costing about $45,000 in January of 2025, drivers are looking for all the tips they can get to lower their car costs.
Cutting down on the interest you pay can save you money in the long run, and it may help lower your monthly car payment in the short term, too. Learn more about how to avoid paying interest on your car loan with our tips below.
If you’re shopping around for auto loan rates, compare interest vs. APR and consider the total costs of your loan options before you commit. Paying interest is almost impossible to avoid if you’re financing a car, but you can minimize how much of it you pay.
The easiest way to avoid paying too much interest on a car loan is by getting the best terms you can at the start of your loan or during a refinance. Your down payment, credit score and loan length all influence your interest rate.
A bigger down payment can lower your interest rate because you’re financing less overall. By lowering your loan amount with a hefty down payment, you’ll pay less in interest than you would if you financed a larger amount.
For example, on a $45,000 car, a 20% down payment would be $9,000. You’d finance and pay interest on the remaining $36,000. At 7% for 60 months, that would be more than $6,700 in interest.
If you put down 50% ($22,500) on the same loan, you’d pay a little over $4,200 in interest — saving you around $2,500 over the life of the loan.
Your credit score plays a big role in the interest rate you can qualify for. By improving your credit, you could qualify for a lower rate, which can save you money on interest.
Consistently making all your payments on time is one of the best ways to help your credit score. If you can, pay down any credit card balances, too – and leave old accounts open for an extra boost.
Although longer terms can give you a smaller monthly payment, they’re not a good way to avoid interest on your car loan. That’s because you’ll end up paying interest for a longer period of time, and those costs add up. Instead, choose a shorter loan term to reduce the total interest you pay. Just make sure your budget can handle the larger monthly payment.
Having a co-signer on your loan provides a little extra assurance to your lender that your debt will be repaid, since they can hold the co-signer responsible for payment if you fall behind. Adding a co-signer with good credit could help you get a lower interest rate, which can reduce the overall interest you pay.
Once your loan terms are set, there are still more strategies you can use to avoid paying interest on a car loan. One of the most effective is to make additional payments toward your principal. This can lower your balance faster and reduce the overall interest paid. There are a few ways you can make extra payments:
Sometimes, your financial situation changes for the better. If your credit score has gone up or interest rates have dropped, you could be in a great position to refinance your car. Refinancing replaces your existing auto loan with a new one.
If you want to not pay interest on your car loan, shop for a refinance option with a lower rate and choose a shorter term, if you can. Both these options can shave off your total interest costs and help you save.
If you’re ready to get started, RefiJet makes it easy to compare offers from multiple lenders and find the best refinance terms for your goals.
Here are some common questions about ways to avoid paying interest on a car loan.
If you finance a car, you’ll have to pay at least a small amount of interest. But you can reduce the interest you do pay by choosing a loan with favorable terms and paying extra when you can. That will lower your overall interest costs and save you money.
Paying an extra $100 on your monthly car payment is a great way to pay off your loan faster and cut down on interest. For example, paying an extra $100 monthly on a five-year loan for $45,000 with a 7% rate would save you over $1,000 in interest costs.
Changing your payment won’t alter the interest rate on your auto loan. If you want to change the interest rate, you’ll need to refinance your loan to secure a different rate. Auto refinancing is a popular way to lower your monthly payment, reduce interest costs or both.
If you want to cut down the interest you pay on your car loan, choose a loan with the best terms you can get. Make extra payments when you can, and consider refinancing if your financial situation improves and you qualify for better terms.
Discover how to avoid paying interest on a car loan with practical strategies for effective debt management and avoid over paying.
