Best auto loan rates are dependent on many factors, including credit scores, car purchase or refinance goals and the type of vehicle being financed. However, you can make a difference by shopping around and following some basic tips.
MyAutoLoan, Consumers Credit Union, PenFed Credit Union and iLending are some of the companies that have low APRs on new or used cars for those with good credit.
Shop Around
If you’re in the market for a new or used vehicle, finding the best auto loan rates is a top priority. After all, interest on a car loan can add up quickly. If you have poor credit, for example, you’ll likely pay a higher interest rate than someone with a high credit score. But if you’re prepared to shop around, you can get competitive auto loan offers from traditional banks and credit unions as well as online lenders.
While the lender with the lowest rates isn’t necessarily the right choice for everyone, a few key factors are usually important to consider:
Fees: Lenders with low fees and transparent fee structures typically offer better auto loan rates. Loan amount: Generally, larger loans can have lower rates, as long as the loan-to-value ratio isn’t too high. Loan term: A longer loan term can mean a larger monthly payment, but it could also result in a lower overall rate.
Reputation: While it’s not always possible to judge a lender’s reputation based solely on its auto loan rates, borrowers should pay attention to any negative reviews and complaints about the lender. Lenders with a solid track record of treating customers fairly often offer the best auto loan rates.
You can shop auto loan rates by using an online loan comparison service or visiting the websites of lenders directly. These services are free to use and allow you to view quotes without a hard credit pull. They may also provide you with prequalification estimates, which aren’t final until you officially apply.
Auto loan rates vary significantly between lenders, so it’s important to compare them all to find the best one for your specific situation. When comparing rates, look at the lender’s credit requirements, minimum income requirement and down payment policy. Some lenders may offer discounts for borrowers who set up automatic payments or make other concessions, such as a small down payment.
If you don’t have an excellent credit score, you might be able to get a competitive auto loan with a cosigner. But this approach is often discouraged by financial advisors because it can hurt the cosigner’s credit score if you miss any payments. It can also put a strain on personal relationships.
Get Pre-Approved
If you want the best auto loan rates, shop around. But before you do, find out how much lenders will be willing to lend you by getting preapproved for a car loan. This puts you in the driver’s seat when it comes to shopping around and negotiating at the dealership.
You can get preapproved for a car loan by visiting the websites of traditional banks, credit unions and online lenders. Many lenders also have prequalification tools that allow you to view potential loan terms, payments and interest rates without a hard inquiry on your credit report. The good news is that applying to multiple lenders within a 14-day window generally won’t damage your score, either.
Some lenders that offer competitive auto loan rates include Navy Federal, Carvana and Ally. The latter is a top choice for consumers with bad credit because its wholly online model combines the buying and financing experiences and accepts applicants who have FICO scores as low as 580. It also offers one of the highest starting APRs among all our top picks.
Most of the lenders on our list provide a range of lending options, from loans for used cars to refinances. They also offer different lending criteria for borrowers with various credit profiles. For example, some have higher minimum credit scores for new-car buyers than for used-car buyers. Similarly, some lenders may require proof of income or employment for all applicants, while others don’t.
If your credit needs improvement, take time to make credit card payments on time and pay down debt before you apply for an auto loan. This will help raise your credit score and improve your chances of securing the best rates.
When you’re ready to buy, bring your loan check with you and use it as leverage when negotiating at the dealer. Some dealers will try to push their own financing or focus on monthly payments, which can set buyers up with long loan terms and high interest rates. Having a firm number for what you can afford to spend can make it easier to say no to additional add-ons and warranties offered at the dealership.
Loan Term Flexibility
The loan term, or the number of years you’ll be paying off your auto loan, can have a big impact on the total cost. For example, if you’re able to stretch out your loan term by just one or two years, you could save thousands of dollars in interest.
To find the best car financing rates, it’s important to consider all the loan terms and fees available, as well as the type of vehicle and loan amount you’ll need. You can do this by using an online loan calculator, which can help you compare offers from different lenders. It’s also a good idea to shop around and apply for loans with several lenders, if possible, in order to get the most competitive auto loan rates.
It’s important to note that the best car finance rates are highly dependent on your credit score. Borrowers with the highest credit scores tend to receive the lowest rates, while those with lower scores will pay the highest. In fact, if you can improve your credit score by just 30 to 40 points, it could result in much lower auto loan rates.
Other factors that can influence the best auto loan rates include income requirements, down payment amounts and lender discounts. For example, some lenders only offer the best auto loan rates to borrowers who can make a minimum down payment of 20 percent. A larger down payment reduces the amount of your loan and lowers the loan-to-value ratio, which in turn can lead to better rates.
Another way to potentially improve your chances of getting the best auto loan rates is to have a co-signer on your loan. If a family member or friend has excellent credit, they can sign on to your auto loan with you and help you qualify for the lowest rates. However, if you can’t qualify for an auto loan on your own, it might be wise to reconsider purchasing a vehicle.
Overall, PenFed is one of the top choices for borrowers with average credit or less. The lender has an A+ rating with the BBB and a stellar 4.6 out of five star rating on Trustpilot from over 1,200 reviews.
Improve Your Credit Score
If you’re looking to secure the best auto loan rates, it’s worth boosting your credit score before you apply. A high credit score and a low debt-to-income ratio can help you qualify for lower interest rates, which may save money in the long run. A good place to start is your bank or credit union, which may offer a low loan rate on new and used vehicles for customers with strong financial histories.
Many online lenders also offer prequalification tools, which can give you an idea of the kind of loan rate you might get. But be careful when using these calculators, as they typically pull a soft inquiry from each of your credit reporting agencies (VantageScore uses 14-day windows, while FICO uses 45-day windows) when you enter your information.
A hard credit inquiry occurs when you apply for a loan, and it can cause a slight drop in your credit score. This can affect your credit utilization, which accounts for 30 percent of your FICO score. Lenders prefer to see your credit utilization at or below 30 percent. If your credit isn’t as great, try paying down the amount of debt you owe to improve your credit utilization and possibly boost your credit score enough to qualify for better loan rates.
Financing a car can be beneficial to your credit score because on-time payments are reported to each of the three major credit bureaus. This will positively impact the payment history variable, which makes up 35% of your FICO score. It can also help raise your credit score by lowering your debt-to-income ratio, which takes into account both revolving and installment debt.
It may take a while to see an improvement in your credit scores from financing a vehicle, as it often takes months for each of the factors that make up your credit score to be updated. But if you’re committed to making your monthly payments on time, you should be able to see improvements in as little as six months or a year.
If you have poor credit, it can be challenging to find auto loan lenders that provide competitive annual percentage rates (APRs). However, there are some providers that specialize in offering car loans to borrowers with lower scores. For example, myAutoloan serves borrowers with a FICO score of at least 575 and offers new and used auto loans as well as refinance and lease buyout loans.
Conclusion:
Securing the lowest auto loan rates requires a combination of careful preparation, research, and negotiation. By following the steps outlined in this guide, you can increase your chances of obtaining a favorable auto loan rate:
- Check and improve your credit score: Start by reviewing your credit report and taking steps to improve your credit score before applying for an auto loan. A higher credit score can help you qualify for better interest rates.
- Compare multiple lenders: Research and compare rates from various lenders, including banks, credit unions, and online lenders. Consider factors such as interest rates, loan terms, fees, and customer reviews to find the best options.
- Get pre-approved: Obtain pre-approval from one or more lenders. This process involves submitting a loan application and providing necessary documents to determine the loan amount and interest rate you qualify for. Pre-approval gives you more negotiating power.
- Negotiate with lenders: Use your pre-approval offers as leverage to negotiate with other lenders. Ask for lower interest rates, reduced fees, or better loan terms. Remember, lenders want your business, and they may be willing to negotiate to secure your loan.
- Consider a co-signer or collateral: If you’re struggling to secure a low-interest rate on your own, consider getting a co-signer with a strong credit history or offering collateral, such as a vehicle or savings account, to improve your loan terms.
- Read and understand the loan agreement: Before signing any loan documents, carefully read and understand the terms and conditions. Pay attention to the interest rate, loan duration, fees, and any potential penalties. Seek clarification if needed.
Remember, securing the lowest auto loan rate is a personalized process, and what works for one person may not work for another. It’s important to evaluate your financial situation, creditworthiness, and loan options to find the best deal for you.
Frequently Asked Questions (FAQs):
- What credit score is needed for the lowest auto loan rates?
While specific credit score requirements vary by lender, generally, a higher credit score, such as 700 or above, improves your chances of securing lower interest rates. However, even with lower scores, you can still find competitive rates by shopping around and improving other aspects of your loan application.
- How much should I put as a down payment?
Making a larger down payment can reduce your loan amount and potentially lower your interest rate. Aim for a down payment of 10-20% of the car’s purchase price, if possible. However, consider your budget and financial circumstances when deciding on the amount.
- Can I negotiate the interest rate on an auto loan?
Yes, you can negotiate the interest rate on an auto loan. Use pre-approval offers as leverage and be prepared to negotiate with different lenders. Remember to consider the overall loan terms, including fees and repayment conditions, in addition to the interest rate.
- Is it better to finance through a dealership or a bank?
Both options have pros and cons. Dealership financing offers convenience, but rates may be higher. Banks and credit unions generally offer lower rates, but the process may be less convenient. Research and compare offers from both to determine which is best for you.
- Can I refinance my auto loan to get a lower rate in the future?
Yes, refinancing your auto loan is an option if you find better interest rates or improved creditworthiness. Refinancing can help you secure a lower rate and potentially save money over the life of the loan. Evaluate the costs and benefits before proceeding.
- Should I choose a short-term or long-term loan?
Short-term loans typically come with higher monthly payments but lower overall interest costs. Long-term loans have lower monthly payments but may result in paying more.
