Best Auto Loans of December 2024: Compare Rates and Terms

Local banks, credit unions, online lenders, and certain dealerships offer auto loans. Here are our picks for the best auto loans.

Reviews of the best auto loans

If you prefer to start your car shopping and loan shopping online, you can look at financing options from four of the best online auto loans featured below.

• Best for comparison shopping: MyAutoLoan
• Best for no vehicle restrictions: LightStream
• Best for lifetime financing: Carputty
• Best for bad credit: AutoPay

MyAutoLoan

LightStream

Carputty

Autopay

How does an auto loan work?

An auto loan is an installment loan secured by the vehicle itself. The lender will give you a lump sum to cover the cost of the car, and you’ll make monthly payments, including interest, over time to pay it off. If you fall behind on your payments, the lender can repossess your car to protect itself against a loss.

Most lenders typically use your FICO Auto Score (rather than a traditional credit score from FICO or VantageScore) to determine your creditworthiness. A few nuances make this credit score different, but you can generally use your traditional credit score to evaluate your chances of approval.

If you’re approved for an auto loan, these are important elements to note:

• The loan amount: This is how much you’re borrowing from the lender. You can keep this cost down by making a larger down payment and trading in your current car.
• Annual percentage rate (APR): The APR is the effective interest rate on the loan. This is the main way the lender makes money when lending to you. (Lenders may also make money through fees, such as origination fees, late fees, and early payoff penalties.)
• The loan term: This is how long the auto loan lasts, often in 12-month increments. Car loans tend to range from 36 months (three years) to 72 months (six years), but some loans can be shorter or longer. The longer the loan, the more you’ll pay in interest.

What type of auto loan do you need?

There are several different types of auto loans, each with different characteristics. Here are some examples.

New car loans

You can get a new car loan through a dealership, bank, credit union, or an online lender. Some lenders offer new car loans for up to 96 months, but the average new car loan term in 2024 is 66 months as of March 2024.

Be mindful of the car loan term you choose. Most new cars depreciate 20% in value in the first year. Stretching out your car loan for an extended term might lead you to owe more on your car than it’s worth in the future.

Used car loans

Many lenders offer used car loans but expect interest rates to be slightly higher than new ones because used cars are riskier purchases. 

The Q1 2024 Experian State of the Automotive Finance Market report showed that those with excellent credit scores 780+ averaged a 5.38% interest rate for new cars and 6.80% for used cars.

The primary benefit of a used car is the lower price, but consider the vehicle’s age, mileage, and past maintenance when purchasing.

Private party loans

If you want to purchase a car from an individual rather than a dealership, you can apply for a private-party car loan. Some lenders might require you to inspect the car and show proof of the sale. 

With private-party loans, do your due diligence to ensure the title is clear before purchasing it.

Lease buyout loans

If you lease a car, you can often purchase it once your lease is over using a lease buyout loan. This loan covers the buyout price of your vehicle, also known as its residual value. 

If you choose a lease buyout loan, carefully read the terms, as they might differ from a typical auto loan.

How to choose the best auto loan

Choosing the best auto loan for you depends on your needs. The most important factors to consider are the interest rate, loan amounts, loan terms, and your down payment.

Interest rate

Your interest rate has a significant impact on the total cost of your loan. A high interest rate can add thousands of dollars to the total amount you pay for your car over your term. Typically, the higher your credit score, the more likely you are to qualify for a competitive interest rate.

Compare interest rates from three to five different lenders before committing to one. Even a slightly lower interest rate can save you money on your monthly payments and overall loan cost.

Loan amount

The amount of money you can borrow for a car loan depends on your income, debt-to-income ratio, down payment, and credit score. If a lender doesn’t approve you for the vehicle you want, you’ll need to choose a less expensive vehicle or make a larger down payment.

Remember that you’ll have additional costs, such as your vehicle taxes, insurance, and registration.

Loan terms

The most typical auto loan terms are 36, 48, 60, and 72 months. However, many lenders now offer 84-month terms or more. 

According to data from Statistia, the average car loan in Q1 of 2011 was 60.65 months. It peaked at 71 months in Q2 2020, and more recent data shows an average of 65.37 months in Q2 of 2023.

Fees

Some lenders also charge fees on top of your loan terms and monthly payments. These fees might include origination fees, late fees, credit check fees, or prepayment penalties.

Down payment

Making a large down payment can help reduce your loan principal and monthly payments. You can also trade in your current car and use that amount towards your down payment. 

Final considerations

Here are a few final tips when choosing the best auto loan.

• Calculate the full cost of the loan: It can be tempting to only look at interest rates when comparing car loans, but you should also factor in other fees. Fees and term lengths can help you determine how much you’ll spend over the life of the loan.
• Pay attention to loan amounts: Some lenders may cap how much they’re willing to loan you. If it’s not enough to cover the car you want, you’ll need to keep looking.
• Prioritize other features too: When borrowing money, you usually want to pick the option that will cost you the least. However, other factors may be important in your decision-making, such as whether the lender has an easy-to-use online platform or a branch in your community you can visit if you have questions.

How to improve your approval odds for an auto loan

Worried you might not get approved for a car loan? Here are a few actions you can take to improve your chances:

Improve your credit score

Your credit score is the biggest reason you might get rejected for an auto loan. If you have poor credit, try to improve your score before applying for a car loan.

Making on-time bill payments, reducing your credit card utilization, and paying off debts, such as student loans and personal loans, can all help you boost your score.

Request a smaller car loan

Lenders may be more willing to approve your auto loan if you request a smaller one. You can do this in several ways:

• Shop for a more affordable car, such as a used vehicle or a lower trim level for a new car.
• Make a larger down payment so you don’t have to finance as much.
• Trade in your current vehicle and apply the trade-in value toward your down payment.

Get a cosigner

If a friend or family member with good credit is willing, they can act as a cosigner on your auto loan. Their stronger credit score can help you get approved—and at a lower interest rate—but remember that their credit is on the line when they do this.

If you miss a payment, their credit score will also take a hit. And if you can no longer pay for the car, the cosigner will need to step in and make payments for you.

When asking a loved one to be a cosigner, you should always prioritize making those loan payments. Otherwise, you’re risking someone else’s finances—and your relationship with your friend or relative.

How to apply for an auto loan

Find a vehicle you love but need help affording it? Here’s how to apply for a car loan:

1. Check your credit score and budget

Before taking out any kind of loan, whether a personal loan, home equity loan, or car loan, you should always check your credit score to determine your standing. If your credit score is too low, you may not be able to qualify for a car loan—at least at a manageable interest rate.

Tip

Bad-credit auto loans may be available, but these can be expensive. Only resort to these if you have no other options.

You should also review your budget to understand how much you can afford to spend on a monthly car payment, including interest. And don’t forget: You’ll also need to budget for gas and car insurance and build an emergency fund to cover unexpected car repairs.

2. Shop around for multiple lenders

Never go with the first auto lender you find. Review several lenders to compare rates, fees, and loan terms. Many car lenders may let you prequalify without affecting your credit score.

3. Get preapproved

Once you find a few lenders you might want to go with, go through the official preapproval processes, in person or online. This will let you know what rate and loan amount each preferred lender will offer you. Keep in mind: A preapproval will result in a hard inquiry on your credit report.

Why get preapproved?

A preapproval letter is a powerful bargaining tool when you visit the dealership to purchase a car. It lets the dealership know you’re a serious buyer who has done their homework.

Of course, you don’t need a preapproval letter at the dealership. You can also work with the dealership to get financing there, but you may not get the best auto loan available.

4. Buy the car

Once you’re preapproved, the fun can begin. Test-drive a few cars within your budget, and once you’ve found the vehicle you want, negotiate with the dealership or private seller.

You can purchase the car using your loan if you reach agreeable terms. You’ll then need to set up an account with the lender to ensure you never miss a monthly payment.

Tips to manage an auto loan

Once you’ve bought your new car, make sure you stay on top of your monthly payments to protect your credit—and your new set of wheels. Here are several tips for keeping your auto loan in good standing:

Set up automatic payments

If your lender has an autopay function, set this up to ensure you never miss a monthly payment. Always keep enough money in the checking account to cover this payment. If you’re worried you’ll forget to fund the checking account, set a calendar reminder to transfer funds each month ahead of the payment date.

Make principal-only payments

By making additional principal-only payments, you may be able to pay off your car loan sooner and pay less in interest. Every extra dollar you put toward the principal will save you money in the long run.

Read the fine print

Some lenders may have early payoff penalties. Don’t pay off your loan early in full if the lender will charge you this fee.

Besides, keeping the auto loan in your credit mix can be helpful for your credit. A diverse credit mix is one factor affecting your credit score.

Pay attention to interest rates—and refinance when it makes sense

If you bought a new car when interest rates were high (or when your credit score was lower), consider refinancing your car loan if things change. Getting a lower interest rate could save you hundreds, if not thousands, over the life of the auto loan.

How do the lenders above utilize new technology to offer the best auto loans?

New technology, including AI advancements, can make securing an auto loan much easier. Consumers can apply for loans, upload documents, and sign on the dotted line without leaving their computers. Many lenders also use blockchain technology to complete these loan applications and keep borrowers’ information safe.

It’s also easier than ever to compare lenders. MyAutoLoan gives borrowers four lending options in just minutes. In the past, getting quotes from several lenders could take days or weeks.

Ultimately, new technology is making auto lending much more convenient and accessible. A drawback is that consumers lose the face-to-face relationships with bankers that were more commonplace a decade ago. However, many tech-savvy consumers prefer the ease of securing financing online.

How do current economic conditions affect auto loans?

An article published by the University of Delaware reported that inflation impacts the price of groceries, housing, and healthcare. It also impacts transportation costs and the price of cars. 

More expensive cars mean bigger monthly payments for consumers. That can be a challenge when so many basic needs, like food and housing, have also increased in price.

According to a recent Detroit Free Press article, “The national jobless rate has remained below 4%, the longest stretch in more than 50 years.” As such, the article reports that it’s inflation, not job losses, that have caused recent increases in car loan delinquencies.

Are there discounts or incentives for electric vehicles?

Yes, there are a few incentives for purchasing an electric vehicle. You can use a green auto loan, a specific type of loan for purchasing low-emission cars. These loans typically have flexible terms and reduced interest rates compared to traditional auto loans.

Depending on where you live, there might also be tax benefits, credits, or rebates for purchasing an electric vehicle.

If sustainability is important to you, you can also seek out ethical lenders focusing on reducing environmental impact and supporting renewable energy efforts.

FAQ

What are the advantages and disadvantages of opting for a longer-term car loan?

Longer-term car loans can make monthly payments more affordable due to extended repayment periods. This can ease budget strains, especially if you need to balance other financial responsibilities. However, it often results in higher overall interest costs since you’re paying interest for longer. 

You might also end up owing more than the car is worth, particularly if the vehicle depreciates faster than anticipated. Consider your immediate budget and the total cost over the loan’s life span.

How can I improve my credit score before applying to get the best auto loan rates?

Improving your credit score before applying for an auto loan can lead to better rates. Start by checking your credit report for errors and disputing any inaccuracies. Pay down debts to lower your credit utilization ratio. 

Pay your bills on time; punctual payments have a massive impact on your credit score. Avoid opening new credit accounts right before applying for a loan to stabilize your credit history.

What should I look for in the fine print of car loans to avoid unexpected fees or terms?

When reviewing car loan fine print, check for prepayment penalties, which can inhibit your ability to pay off the loan early without incurring additional fees. Look at the interest rate type to ensure it’s fixed rather than variable, which can fluctuate. 

Examine any additional fees, such as documentation fees or early termination charges. Understand the total cost of the loan, including interest, fees, and monthly payments, to avoid surprises.

Are any specific auto loan options or programs available for first-time car buyers?

Yes, various lenders offer specialized auto loan programs for first-time car buyers. These programs may feature lower interest rates, more manageable down payments, or longer terms to ease the financial burden. 

Some programs include educational resources to help first-time buyers understand the financing process better. Some manufacturers offer incentives or special financing deals that cater to this demographic.

Can I negotiate better terms or auto loan rates?

Absolutely. Negotiating auto loan terms and rates can save you money. Research prevailing rates beforehand to understand what constitutes a fair offer. Discuss interest rates, loan terms, and additional fees with the lender. 

Sometimes, showing a willingness to obtain financing from another lender can prompt better offers. Remember, everything from the loan rate to the loan term length is potentially negotiable.

How can leasing a car compare to taking out an auto loan, and which situations might make leasing a better option?

Leasing can be more cost-effective for those who prefer driving new cars every few years without committing to ownership. Lease agreements often have lower monthly payments than loan payments. However, leasing includes mileage limits and potential excessive wear and tear fees. Leasing may be better for those who don’t drive extensive distances, desire lower payments, or enjoy the latest car models.

What is gap insurance, and do I need it?

Gap insurance covers the difference between the car’s value and the amount you owe on your auto loan if the vehicle is totaled or stolen. If you owe more than the vehicle’s depreciated value, gap insurance can save you from paying out-of-pocket to cover that gap. It’s essential if you make a minimal down payment, take a long-term loan, or drive a vehicle that depreciates quickly.

How we selected the best auto loans

Since 2018, LendEDU has evaluated auto loan companies to help readers find the best auto loans. Our latest analysis reviewed 322 data points from 14 lenders and financial institutions, with 23 data points collected from each. This information is gathered from company websites, online applications, public disclosures, customer reviews, and direct communication with company representatives.

These data points are organized into broader categories, which our editorial team weights and scores based on their relative importance to readers. These star ratings help us determine which companies are best for different situations. We don’t believe two companies can be the best for the same purpose, so we only show each best-for designation once.

Higher star ratings are awarded to companies that create an excellent borrower experience and seamless transition from fund disbursement to vehicle purchase. This includes offering online eligibility checks, cost transparency, competitive interest rates with no fees, and unique benefits that support borrowers throughout repayment.

Recap of the best auto loans