Best Auto Loans for 2017

Best Auto Loans

Updated: September 18th, 2017

If you are in the market for a new car, this could be the time to score your best deal – not only on the price of a car; but also on a car loan. With the emergence of online lenders over the last several years, the competition to provide you with automobile financing has become fierce.

These days, there are many different options when it comes to auto loans. Finding the rates on an auto loan should be your first step in the car buying process. This guide will point you in the right direction while offering tips on how to score your best auto loan so you can save some money on your wheels.

Best Auto Loans for 2017

at LightStream's secure website

Rates (APR)

2.29% - 9.04%*
(with AutoPay)

Repayment Terms

24 - 84 months*

Min. Credit Score

Good to Excellent


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

at MyAutoLoan's secure website

Rates (APR)

2.19% - 24.99%

Repayment Terms

24 - 72 months

Min. Credit Score

500


Min. Loan Amount

$8,000

Max. Loan Amount

$100,000

Min. Annual Income

$21,600

cars direct logo

at CarsDirect's secure website

Rates (APR)

Varies

Repayment Terms

Varies

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

$18,000

wells fargo auto loans

at Wells Fargo's secure website

Rates (APR)

3.89% - 10.51%

Repayment Terms

12 - 72 months

Min. Credit Score

650


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

bank of america auto loans

at Bank of America's secure website

Rates (APR)

As low as 2.84%

Repayment Terms

12 - 60 months

Min. Credit Score

580


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

alliant credit union auto loans

at Alliant's secure website

Rates (APR)

As low as 2.24%

Repayment Terms

12 - 84 months

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

N/A

navy federal auto loans

at Navy Federal's secure website

Rates (APR)

1.99% - 17.99%

Repayment Terms

0 - 96 months

Min. Credit Score

700


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

N/A

chase auto loans

at Chase's secure website

Rates (APR)

2.49% - 24.99%

Repayment Terms

48 - 72 months

Min. Credit Score

650


Min. Loan Amount

$7,500

Max. Loan Amount

$100,000

Min. Annual Income

N/A

DCU auto loans

at DCU's secure website

Rates (APR)

As low as 2.24%

Repayment Terms

0 - 84 months

Min. Credit Score

650


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

auto credit express

at Auto Credit Express's secure website

Rates (APR)

Varies

Repayment Terms

36 - 72 months

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

$18,000


Best Auto Loans Offered by Online Companies

Today, many of the best auto loan companies aren’t banks; they are non-banks or alternative lenders spawned by the Internet in the wake of the banking crisis in 2008. Online lenders have proliferated in the last five years, offering a completely different loan shopping experience – a quick and easy application and approval process, fast funding, and highly competitive rates. These are the best auto loan companies online for 2017:

LightStream

Rates (APR)

2.29% - 9.04%*
(with AutoPay)

Repayment Terms

24 - 84 months*

Min. Credit Score

Good to Excellent


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

LightStream has become one of the more innovative online lenders. Qualified borrowers can use LightStream’s unsecured personal loans for just about anything, although the APR could vary depending on the purpose. LightStream, which has operated as the national online consumer lending division of SunTrust Bank since 2012, used the same innovative approach to auto loans, offering secured or unsecured loans for any type of vehicle – new or used – purchased from any source – dealer, or private seller. You may be able to obtain some of the most competitive loan rates available with good to excellent credit.

LightStream offers both secured and unsecured auto loans. Secured loans (collateralized by the purchased vehicle) are offered to borrowers with less than excellent credit. You will likely need a credit score of at least 660 to qualify for any of LightStream’s loans. However, LightStream does suggest that it looks at more than just FICO credit score during the underwriting process.

Borrowers with excellent credit can obtain an unsecured loan with some of the lowest auto loan rates on the market. That means they don’t have to contend with the hassle of completing all of the lien-holder paperwork.

LightStream offers loan terms of 24 to 84* months on loan amounts between $5,000 to $100,000 (maximum loan terms for loans between $5,000 and $24,999 is 72 months*). APRs currently start as low as 2.29%* with AutoPay on loans for $10,000 and up for both new and used cars from dealers. The highest APR for new and used cars from dealers – 7.44%* with AutoPay – is paid on loans between $5,000 and $9,999 with a 61-72 month term*.

LightStream Auto Loan Pros

  • Lowest rates around
  • No fees
  • No restrictions on type and age of car
  • Same day approvals and funding is possible – but not guaranteed
  • Secured loans available for borrowers with less than great credit

LightStream Auto Loan Cons

  • People with less than good credit need not apply
  • Application requires a hard pull on your credit

CarsDirect

cars direct logo

Rates (APR)

Varies

Repayment Terms

Varies

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

$18,000

CarsDirect made its mark in the auto industry as a car-buying service by connecting consumers with a vast network of new and used car dealers. It streamlined the car shopping and buying experience by matching consumers with sellers who offered the best prices on the car of their choice. It has essentially done the same things for auto financing, connecting car buyers with franchised or independent dealers willing to finance their purchases.

Essentially, CarsDirect operates as a broker, a middleman who puts you in touch with the dealers that have the car and loan you want at the right price. When applying for financing, you fill out one application that could go out to a dozen dealers. The good news is you are likely to find a dealer with the best auto loan offer at your credit standing; the bad news is you are likely to be inundated with emails and calls from dealers and lenders for some time after you have closed your car deal.

The APR you receive is determined by the dealer offering the financing. It is common knowledge that financing through a dealer is generally more expensive because they tend to mark up the rates. If you have very good credit, you are in a better position to negotiate with the dealer; but if you have less than good credit, you will likely have to accept the rate you are offered. If your credit improves over time, you can always try to refinance the loan with another auto lender.

Because CarsDirect can only connect you with financing offers from local dealers, it can be limiting in finding the very best auto loan rates. The other downside is, since you are financing through a dealer, your loan documents can’t be finalized online. You will have to meet with a finance person at the dealer, which most people try to avoid.

CarsDirect Auto Financing Pros

  • Good for buyers who want less expensive, older used cars
  • It does the legwork to find you dealer financing offers
  • May be the best option for car buyers with less than good credit
  • Robust online tools for car search, buying tips, and a financing calculator

CarsDirect Auto Financing Cons

  • Buyers must deal directly with dealers to obtain financing
  • You can expect to receive a lot of calls from other auto lenders

MyAutoLoan

Rates (APR)

2.19% - 24.99%

Repayment Terms

24 - 72 months

Min. Credit Score

500


Min. Loan Amount

$8,000

Max. Loan Amount

$100,000

Min. Annual Income

$21,600

MyAutoLoan.com operates as one of several online lending platforms under the umbrella of Horizon Digital Finance, LLC, which was founded in 2003. Through several different websites, Horizon has created an online financing marketplace, offering a variety of direct-to-consumer financing options. MyAutoLoan.com is the flagship site for auto financing, offering financing options for new and used cars purchased from any source.

MyAutoLoan acts as an intermediary, connecting car buyers with lenders based on the type and location of the car as well as the credit standing of the buyer. You submit one application and within a matter of minutes receive up to four offers. If you have great credit, you could currently see one of the lowest auto loan rates of 1.99%. People with less than good credit could see offers as high as 24.9% (29.9% for refinancing).

MyAutoLoan is a great source for people who want to purchase cars from a private seller or who want to purchase their leased vehicle. However, MyAutoLoan limits its services to cars valued at $8,000 or more, less than 10-years old and with fewer than 125,000 miles.

MyAutoLoan is also a great source for first-time car buyers who need help in finding the right financing option. Its website has a number of helpful tools for determining how much car you can afford and the cost of different financing options based on your credit score.

MyAutoLoan Pros

  • No application fees
  • Great resource for first-time buyers
  • Offers financing for private transactions and leased vehicles
  • Financing options for people with bad credit

MyAutoLoan Cons

  • Requires a hard pull on your credit
  • You can expect a lot of calls and emails from other lenders

Best Auto Loans Offered by Banks

Although banks have been challenged by the emergence of online auto lenders, reports of their demise have been greatly exaggerated. By their sheer size, reach, and huge customer bases, banks are still a formidable force in auto financing. Most traditional banks have stepped up their efforts to compete with alternative lenders by beefing up their direct-to-consumer capabilities, and offering the same streamlined application and approval process as other online lenders. In most cases, borrowers can get a discounted APR by being a depositor with the bank. These are the best auto loans offered by banks:

Bank of America

bank of america auto loans

Rates (APR)

As low as 2.84%

Repayment Terms

12 - 60 months

Min. Credit Score

580


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

Long considered one of the best auto loan lenders among traditional banks, Bank of America continues its dominance by offering competitive rates and an easy online application process. As the second largest U.S. bank, Bank of America has a tremendous footprint with nearly 5,000 retail branches serving more than 45 million consumers and businesses. For car buyers who still like the idea of doing business face-to-face, there is probably a location nearby. Or, you can apply online and get approval within 60 seconds. Funding can take place in as little as 24 hours.

Bank of America has aggressively positioned itself as a provider of all types of auto loans, including loans for cars purchased from private sellers and lease buyouts. Interestingly, the bank does not finance cars purchased from independent dealers, except for well known dealers such as Hertz, Enterprise, and CarMax. It does limit loans to cars less than 10 years old with no more than 125,000 miles.

The rates are competitive with other banks and come fairly close to the top online auto lenders. As of June 2017, its best auto loan rate is a 2.74% APR on new cars. The best auto loan rate for used cars and refinancing is 3.09%. Private party financing rates are as low as 3.39%.

Bank of America Preferred Rewards customers can have up to .50% docked from their rate. You can enroll in Preferred Rewards at the time of your application, but it requires that you maintain a 3-month average combined balance of $20,000 in your Bank of America deposit accounts and/or Merrill Lynch investment accounts. Buyers with less than great credit can qualify for financing at higher rates, but the bank may also require a down payment or a minimum loan to value ratio.

Bank of America Pros

  • Personal assistance available at 5,000 branch locations
  • Among the lowest APRs among banks
  • No fees or prepayment penalties
  • Quick and easy online application and approval process
  • Loans available for private party sales and lease buyouts
  • Loan discounts for checking and Preferred Rewards customers

Bank of America Cons

  • No online pre-approval
  • You won’t know your actual APR until you apply
  • Down payment may be required depending on your creditworthiness
  • No financing available for cars purchased from independent dealers

Wells Fargo

wells fargo auto loans

Rates (APR)

3.89% - 10.51%

Repayment Terms

12 - 72 months

Min. Credit Score

650


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

With nearly 9,000 branch locations, Wells Fargo has the largest footprint of any bank in the U.S., which gives it a leg up in generating new auto loans. Car buyers can walk into a neighborhood branch to apply for a car loan or go the quick and easy route by logging in online. Wells Fargo finances most types of cars purchased new or used from dealers, independent and private parties. Wells Fargo does not offer auto financing in the state of Louisiana.

While the rates available through Wells Fargo are not the lowest, they are still competitive with other big banks. New car loan APRs currently start as low as 3.89%. Used cars purchased from a dealer can qualify for a 4.15% APR. Although Wells Fargo does offer financing for private party purchases, the rate is a little high at 6.49%. These are the best auto loan rates offered by Wells Fargo, but as indicated on its website, only 5% of applicants qualify for them. The maximum loan rate is 10.51%.

The best car loan rates are only available to the most creditworthy borrowers purchasing a car worth $22,000 or more with a maximum 85% loan-to-value ratio. That means, even if you have excellent credit, you may have to come up with a down payment to qualify for the lowest rate. 100% financing is available, but your APR will be higher.

A .25% loan discount is available for checking customers who opt for automatic loan payments to be made from their account. Wells Fargo does charge a $99 origination fee that is financed in the auto loan.

Auto loans may be financed for up to $100,000 and up to a 72-month term. Cars older than seven years are limited to a maximum 48-month term. The minimum loan amount is $5,000.

Wells Fargo Pros

  • Quick and easy online application and approval
  • Same day pre-approval available
  • Competitive rates for the most creditworthy borrowers
  • Financing available from $5,000 to $100,000
  • Financing available for private party or lease purchases
  • Relationship discount available

Wells Fargo Cons

  • $99 origination fee
  • 48-month maximum term for cars seven years and older
  • You won’t know your actual APR until you apply

Chase Bank

chase auto loans

Rates (APR)

2.49% - 24.99%

Repayment Terms

48 - 72 months

Min. Credit Score

650


Min. Loan Amount

$7,500

Max. Loan Amount

$100,000

Min. Annual Income

N/A

Chase Bank is the biggest of the big four banks, in terms of assets, and has more than 5,100 branch locations throughout the United States. Customers can walk into any branch to apply for a car loan or go online to get a loan approved within minutes. Chase offers car loans for up to $100,000 for new and used cars, but a car cannot be more than five years old and it must have less than 75,000 miles.

Car loan rates vary based on the type of car you are buying, your credit score, the loan-to-value ratio and the state you live in. In most states, the best car loan rate available is currently 2.99, while in some states it is 2.69%. Chase has an online calculator that allows you to input information about the car, your credit standing, and your state, so you can see what APR you might qualify for. Used car loan rates currently start at 3.09% for higher priced models and top out at 3.39% for cheaper cars. To get the best APR available, you will be required to come up with a down payment. Chase requires a loan-to-value ratio of 80% for new cars and 95% for used cars.

These represent Chase’s best auto loan rates, which are reserved for their most creditworthy borrowers. All loans are discounted by up to .50% for checking customers who use auto payments. That would lower the best auto loan rate to 2.19%, which is very competitive with the top online lenders. You can choose terms between 48 and 72 months with the best APRs available for 60-month terms.

Chase also offers a car-search service on its website, where you can input information on the year, make, and model of the car you want. The service will locate dealers in your area along with prices so you can compare. In many cases, you can receive a discount on cars purchased through the service.

Chase Bank Pros

  • Loans as low as $7,500
  • No loan fees
  • Highly competitive APR when combined with customer discount
  • Car search service with dealer discount

Chase Bank Cons

  • Shortest loan term is 48 months
  • No pre-approval available online
  • APRs vary by state

Best Auto Loans Offered By Credit Unions

Credit unions tend to offer lower auto loan rates than traditional banks, largely because they are non-profit and pass their cost savings on to their members. However, many require you to become a member before you can transact any business with them. Fortunately, many credit unions have loosened their membership requirements, allowing just about anyone to join. These are the best auto loans offered by credit unions:

Alliant Credit Union

alliant credit union auto loans

Rates (APR)

As low as 2.24%

Repayment Terms

12 - 84 months

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

N/A

Alliant Credit Union is the fifth largest credit union in the U.S. servicing more than 280,000 members. Along with meeting some minimal membership requirements, all you need to become a member of Alliant is to open a savings account with a $5 deposit. If you don’t meet any of the membership criteria you can qualify by making a one-time donation to Foster Care for Success.

Alliant offers auto loans for most types of cars – new, used, and from private sellers – for as low as $4,000. It offers loan terms of up to 84 months for new and used cars but its best auto loan rates are limited to 60 month terms.

As of June 2017, its lowest auto loan rate is 2.24% for new car purchases. The APR for used cars and refinancing is just a tick higher at 2.49%. Alliant does offer used car financing for older cars – 10 years or older – but the best APR is 5.49%. You can lower your APR by as much as .50% by opting for automatic payments and for using Alliant’s car buying service. That would make its lowest auto loan rate 1.74%, which is hard to beat.

You can apply online and receive pre-approval the same day, allowing you to shop for a car with confidence.

Alliant Credit Union Pros

  • APRs below industry average
  • Among the lowest APRs when combined with discount up to .50%
  • Same day pre-approval
  • No fees
  • Loans as low as $4,000
  • No minimum income requirements to apply

Alliant Credit Union Cons

  • Requires membership

Navy Federal Credit Union

navy federal auto loans

Rates (APR)

1.99% - 17.99%

Repayment Terms

0 - 96 months

Min. Credit Score

700


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

N/A

What is the largest credit union that you’ve probably never heard of? It’s the Navy Federal Credit Union (NFCU), which serves members of the military and employees of the Department of Defense as well as their families. Offering a wide range of financial services, including checking, savings, and mortgages, the NFCU also offers some of the best auto loan rates around.

To obtain an auto loan with NFCU, you do need to be a member – either an active or retired member of any service branch or an immediate family member of someone who is eligible for membership. You can also qualify as a civilian employee or retiree of the Department of Defense.

NFCU offers loans for terms between 36 and 96 months on new cars, and up to 72 months on used cars. New cars are defined as any vehicle manufactured within the last three years with less than 7,499 miles. It also differentiates between late model used cars – cars less than four years old with 7,500 to 30,000 miles – and used cars – any car with more than 30,001 miles.

That’s important because late model cars can qualify for the same low APR as new cars, which is currently 1.99%. The lowest auto loan rate for a used car is 3.79%. Generally, the lowest APRs are applied to shorter loan terms up to 60 months. The lowest APR for a 96-month loan is 4.49%, regardless of whether it is a new or late model car. The lowest auto loan rates in all categories are reserved for the most creditworthy borrowers with a credit score of at least 700.

The application takes just five to ten minutes to complete online and approvals take a few hours. You can also receive a pre-approval so you can go out and shop as a cash buyer. Loans cannot be used for a private seller.

NFCU Pros

  • Extremely competitive APRs
  • Late model car category for lowest APRs
  • .25% discount for in-branch or phone applications

NFCU Cons

  • Strict membership requirements
  • Difficult to qualify for best rates

Digital Federal Credit Union

DCU auto loans

Rates (APR)

As low as 2.24%

Repayment Terms

0 - 84 months

Min. Credit Score

650


Min. Loan Amount

$5,000

Max. Loan Amount

$100,000

Min. Annual Income

N/A

Digital Federal Credit Union (DCU) is one of the top 20 credit unions in the country. Although its physical presence is limited to 22 branch locations in New England, it has a sizable online presence with more than 500,000 members in 50 states. One of its biggest attractions is its auto loan offerings, with low rates and a wide number of options to choose from.

Like other credit unions and banks, DCU offers auto loans for new and used cars. However, unlike the others, DCU offers the same low APRs on both new and used cars. With many of its competitors charging as much as 20% more for used car loans, that is a big advantage for used-car buyers. The lowest auto loan rate is currently 1.99%, available on loans up to 65 months. APRs can be discounted by as much as .50% when you qualify for relationship benefits with a DCU checking account and by using electronic payments through online or mobile banking.

If you’re interested in buying a car that is out of the ordinary, such as a classic or antique car, DCU is the place to go. But, just so you know, the APRs on these types of cars are generally much higher. DCU makes it a practice to be all things to all car buyers, including offering a loan package to fit their specific needs.

DCU Pros

  • Very competitive APRs when combined with .50% discount
  • Loan terms up to 84 months
  • Same low APR for both new and used cars
  • Discounts for energy efficient cars

DCU Cons

  • You need a DCU checking account to get the lowest APR
  • Maximum loan amount is $50,000

Best Auto Loans for Individuals With Poor or Bad Credit

There are many consumers in the U.S. who have subprime credit scores. If you are among them, it doesn’t necessarily exclude you from being able to obtain auto financing. It just excludes you from being able to obtain a loan from traditional lenders. If you are unable to wait to improve your credit before buying a car, there are lenders who will work with you; just don’t expect to receive the most favorable loan terms.

Auto Credit Express

auto credit express

Rates (APR)

Varies

Repayment Terms

36 - 72 months

Min. Credit Score

N/A


Min. Loan Amount

N/A

Max. Loan Amount

N/A

Min. Annual Income

$18,000

For people with bad credit, it can be a frustrating experience bouncing from lender to lender trying to find one who will work with them. Even if they find one, they don’t know if they are being ripped off because they have nothing to compare it to. Auto Credit Express is the largest automotive special finance total solution firm in the U.S., offering people with bad credit access to more than 1,200 car dealers and lenders. It works with first-time buyers and people with various credit issues, even those with past repossessions and bankruptcies, to find them affordable financing for new or used cars.

There are no automatic denials due to high mileage or price restrictions. Each car loan is evaluated individually based on your credit background, the size of your down payment, trade-in options and the type of car.

It is entirely an online service. You apply online, after which you receive a confirmation number you use to log into your account. There you will receive status updates and notice of any offers. Unfortunately, there are no online tools or resources to help applicants better understand their options and costs. For instance, tools to calculate payments based on different APRs or varying down payment amounts. But, for most applicants, Auto Credit Express does deliver.

Auto Credit Express only works with dealers and lenders that report your payments to the credit bureaus. That means you can rebuild your credit with on time payments.

As long as you are at least 18 years old and a legal U.S. resident, all you need to apply is at least $1,500 in monthly gross income and full-time employment.

Auto Credit Express Pros

  • Access to a large network of lenders and dealers willing to work with subprime borrowers
  • Reasonably low rates
  • Easy process to obtain offers
  • A+ rated by the Better Business Bureau

Auto Credit Express Cons

  • None, if you have bad credit and are in need of car financing

8 Strategies for Getting the Best Car Loan Rates

1. Shop the Loan, Then the Car

When you walk onto a car lot with cash in hand you are dealing from a position of strength. Instead of worrying about how you are going to pay for the car, you can focus on striking your best deal. That’s why it is strongly recommended you obtain financing before shopping for your car. Start with your local bank or credit union or online lenders. You should know your credit score before applying so you know what to expect in terms of a car loan rate.

Never compare rates by promotions or advertisements. Those are the very best car loan rates reserved for the most creditworthy borrowers. Most lenders will provide you with qualification guidelines before you apply so you can see what rate you could qualify for. If you feel the need to apply with more than one lender, just make sure you do so within a two-week period. If a car dealer is offering zero percent financing on a model you want, it might be worth considering, keeping in mind that less than 10% of borrowers are able to qualify for these deals.

2. Know Your Credit Score

Your credit score is the primary measure lenders use to determine your creditworthiness. It is important to know your score can vary by 20 points from one month to the next, which can mean the difference between getting a good loan rate and the best car loan rate available. 

A small difference in your score could result in hundreds or even thousands of additional dollars paid in interest costs. For example, on a $20,000 four-year loan, a credit score of 690 might qualify for an APR of 4.60% with a monthly payment of $457. For a score of 689, one point lower, the APR would be 6.71% with a monthly payment of $476. Although there is seemingly a small difference in the monthly payment, over four years the difference amounts to an extra $700 in interest costs.

Most lenders have calculators available that will allow you to plug in your credit score to see what APR you could qualify for. Never apply for a loan blind. Always know your score.

3. Look for Interest Rate Discounts

At different times of the year, you can usually see promotions for interest rate discounts offered by car dealers. These can be very enticing, and possibly a very good deal, especially 0% auto loans. Keep in mind that these types of loan discounts are available only for borrowers with excellent credit, but they do attract more people to the car lot.

It is also important to know that car dealers need to make their money somehow; so if you are fortunate enough to qualify for a discounted rate, you may end up paying a higher price for the car. Or you may be given a choice between 0% financing and a rebate. If you do the math, you may find a rebate would cost you less over the term of a loan with a standard APR. Most likely, if you can qualify for an interest rate discount at a car dealer, you can probably qualify for the best car loan rate with a bank or online lender.

4. Shorter Terms Can Save You Money

Shorter loan terms typically come with lower APRs. With most lenders, 48 to 60-month terms offer the lowest APRs. For shorter loans, 36 months or less, the lender makes less money so they may charge a slightly higher APR. For longer terms, greater than 60 months, lenders consider the loan a greater risk, so they charge higher APRs. Although your monthly payment on an 84-month term will be lower than a 60-month term, you will pay considerably more in total interest costs. Never fall prey to a car dealer who tries to sell you on a car based on the monthly payment. Always consider the APR and your ability to pay the loan off in four to five years.

5. Be Careful When Choosing a Variable Rate Loan

In recent years an increasing number of lenders have begun to offer variable rates on auto loans. A variable rate loan can be very enticing because its APR is typically lower than the loan rate on a fixed loan. While this could help you to get into a more expensive car, or save on monthly payments initially, it could end up costing you much more than you imagined should interest rates rise. If you do consider a variable loan, be sure to study the loan rate caps to see how much the loan rate could rise. About the only reason to consider a variable auto loan is if you have a clear strategy for paying it off in a short period of time.

6. Think Twice About 100% Financing

Although lenders are willing to offer 100% financing to qualified buyers, it is never a good idea to finance the entire cost of the car. That’s because you will likely be upside-down with your loan, owing more on your car than it is worth. That becomes problematic if you want to sell the car or you total your car in an accident. It is important to remember that the minute you drive off the car lot, your car’s value depreciates and continues to depreciate over time. By putting 10% to 20% of your own money down, you will drive off with equity in the car, which should increase as you pay down your loan.

7. Check Out Dealer Financing

There are really only two reasons why you would want to have your car financed by a car dealer. The first is you have bad credit and you need the dealer’s help in securing a loan. The second reason is you have really good credit and you could qualify for a special financing offer from the dealer. In either case, financing your car through a dealer could be your best option. However, while car dealers can be a viable source of financing, it is important to thoroughly study the offer and the paperwork for restrictions or hidden costs.

8. Find Out if Dealers Have Preferred Lender Relationships in the Area

Most dealers have a rolodex of lenders they count on to help get you into a car. Many have special relationships with local lenders who will work with certain customers on a preferred basis. If you have excellent credit, a dealer referral is a great way to gain such an introduction. If you have bad credit, they might know of a local lender that caters to subprime borrowers.


New vs. Used Car Loans – What’s the Difference?

At one time you could always expect to pay a higher interest rate on a used car loan. The traditional view of used car loans by banks was they are higher risk because people who buy them generally have lower credit scores. Plus, used cars are more likely to fall into disrepair. Historically, that combination has led to higher default rates on used car loans.

Times are Changing

That view seems to be changing, in large part because an increasing number of financially astute car buyers are buying well-maintained, certified “pre-owned” cars that are nearly good as new. In recent years there has been a glut of previously leased, low-mileage vehicles hitting car lots. Many lenders now treat these late model cars as new for purposes of pricing their loans. While the banks still tend to differentiate between new cars and any used car in pricing their loans, many of the competitive online lenders don’t, offering the same low APR on used cars as they do for new cars.

Most traditional lenders – banks and credit unions – still differentiate between new and used cars, but not by much. For instance, the spread between Bank of America’s lowest APR for new cars and its lowest APR for used cars is currently just .25%. However, the spread can widen to as much as 1.5% or more with some lenders, so it pays to shop around.

Look for Restrictions

There are usually some restrictions in terms of the age of the car and the number of miles, although some lenders have no restrictions. Some treat late model cars (two to three years old) differently than used cars (four years or older). It is important to know how a lender views used cars and what, if any, restrictions they place on their lending.

Same Process

Generally, the process for obtaining a new car and a used car loan are the same. The same information is collected by the lender, except that, in the case of a used car loan, details about the age, mileage, and condition of the car are also required. Many lenders offer pre-approvals for used car buyers so they can go out and shop for their best car loan rates.

Used Car Buyers Need to do the Math

When buying a late model used car from a dealer, you might pay several thousand less than a new model of the same car, but you are likely to pay a higher used car loan rate. It is important to do the math to determine whether your total costs are higher with a lower-priced used car and a higher interest rate, or a higher-priced new car with a lower interest rate, and that includes maintenance costs. In some cases, especially where the spread between new and used car loan rates is wide, it’s possible to come out ahead by purchasing the new car.


Private Party Loans

There was a time when it was nearly impossible to find financing for used cars from private parties. That began to change with the emergence of online lenders and their aggressive push for auto loan supremacy. Most of the top online lenders will finance private seller transactions, some with no restrictions other than the age and mileage of the car. To remain competitive, many banks and credit unions now offer private seller financing as well.

With many lenders, the spread between new car loan rates and private party loan rates can be very wide, as much as four or five percentage points. This is because lenders view privately sold cars as a much bigger risk than new cars or even used cars sold by a dealer. That is typically the case with traditional lenders, such as banks and credit unions. However, several online lenders charge the same APR on all used car loans, regardless of where the car is purchased. In fact, some online lenders, such as DCU, charge the same APR on all car loans, regardless of whether it is new, a late model, or used.

The process for obtaining a private party loan is the same as a new or used car loan, but with a few additional steps. You apply online through the lender’s website just as you would for any other loan. In addition to the car’s make, model, year, and mileage, some lenders require information on the seller.

Some lenders require a vehicle inspection to ensure it meets their requirements for sale, and many will want to work with the seller in completing the paperwork for lien perfection. Some lenders want to work directly with the seller when it comes time to funding the loan – either transferring it directly to the seller’s account or making a check payable to the seller. Some banks, such as Wells Fargo, require the loan to be closed in person at one of their branches.

If you are interested in purchasing a car from a private party, it is important to do your loan shopping first so you can be in a better position to negotiate. Look for a lender that offers pre-approval on private party sales.


What to Look for in a Car Loan

It would be easy to cut this short by saying you should look for car loans with the lowest APR, but that wouldn’t begin to address all of the issues you need to consider. If you shop by APR alone you could leave yourself open to other problems down the road. Besides, simply looking at advertised APRs doesn’t provide you with any insight into what your actual APR will be if you are approved for a car loan. Some lenders promote an extremely low APR knowing that a small percentage of borrowers will qualify. After that, there could be a big disparity in rates applied to less qualified borrowers. Your best bet is to shop with lenders who offer online rate calculators that allow you to plug in your credit score so you can see what rate you might actually qualify for.

Here are some important things to look for when comparing car loans:

Quick Application and Fast Approval

Getting an car loan should not be a big ordeal, especially in the Internet age where information travels at digital speed. You should be able to complete a quick and easy application and wait no longer than a few hours for a decision. If you have some credit issues, you might be required to submit additional documentation; but if you have all or your ducks in a row, the best lenders will give you an answer within a matter of minutes.

Online Payments Accepted

It is rare to find a lender that doesn’t accept online payments. If you find one, avoid it. Any lender not technologically equipped to accept online payments is bound to have more serious problems. You may want to look for a lender that offers automatic payments from your checking account because it often comes with a discount on your loan rate.

Solid Customer Service

There are plenty of things that can go wrong with a car loan at any time – delayed funding, payments not recorded, payments not reported to the credit bureaus, etc. – or you may just have a question you need answered. The lowest car loan rate in the world won’t help you overcome the frustration of not being able to get a question answered or a problem resolved. Make sure you lender has multiple forms of contact, including a 24/7 phone line, email, and live chat.


*Rates as of 9/1/2017, rates subject to change. Payment example: Monthly payments for a $10,000 loan at 4.44% APR with a term of 3 years would result in 36 monthly payments of $297.20. LightStream disclosures here.