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If you need to buy a car, an auto loan can help you do that. A car loan can also be an option if you are looking to refinance a car loan that you already have.
Here’s what you need to know about auto loans:
Lenders who offer auto loans
There are several types of lenders who offer auto loans, each with their own rates and requirements. This is why it is important to shop around and consider several lenders to find the loan that is right for your needs.
Here are some of your lender options for auto loans:
Online lenders can be a good option for finding auto loans. For example, LightStream – one of Credible’s partner lenders – offers auto loans for new cars, used cars and classic cars as well as auto refinancing.
An online lender might also be able to get you the money for your car much faster than other lenders. With LightStream, you could have the funds deposited into your account as early as the same business day after approval.
Many banks offer auto loans at competitive rates. Some also offer rate reductions if you already bank with them. You can also benefit from a reduction if you subscribe to the automatic repayment of your loan.
Unlike online lenders and banks, credit unions are non-profit organizations. For this reason, they sometimes offer a APR and better car loan repayment terms.
You can also benefit from a rate reduction if you sign up for automatic payments.
Whichever lender you choose, it’s a good idea to consider how much an auto loan will cost you over time. This way you can be prepared for the extra expenses. You can estimate how much you will pay for a loan using our Personal loan calculator below.
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Learn more: Where to get a personal loan
How to get a car loan in 4 steps
If you’re ready to get an auto loan, follow these four steps:
- Know your credit score: Your credit score has a major impact on the amount you can borrow as well as your interest rate and repayment terms. In the second quarter of 2020, borrowers with good to excellent credit qualified for auto loan rates between 3.24% and 4.21% on average, according to Experiential. Borrowers with low to medium credit are entitled to interest rates between 7.14% and 13.97%. If your credit isn’t perfect, you may need to spend some time mortgage or apply with a co-signer.
- Compare lenders and choose your loan option: Make sure you compare as many lenders as possible to find the right auto loan for you. Remember to check not only the rates, but also the repayment terms and any fees charged by the lender. If you are buying from a dealership, you may also want to consider internal financing. After doing your research, choose the loan option that best suits your needs.
- Complete the request: You will need to complete a full application and submit all required documents, such as bank statements, pay stubs, or tax returns.
- Get your loan funds: If you are approved, you will need to sign for the loan so that the lender can send you the money for your car.
Before taking out a loan, be sure to consider as many lenders as possible to find the right one for you.
If you need help financing a car purchase and are considering a personal loan, Credible can help you compare prequalified rates from multiple lenders in two minutes.
Frequently Asked Questions About Auto Loans
If you are considering an auto loan, here are the answers to some common questions:
How does a car loan work?
An auto loan is secured by the car you plan to buy. Because there is less risk to the lender, you could get a much lower interest rate on a car loan compared to a typical personal loan, for example. Remember, if you can’t make your payments, you could lose your car.
If your loan application is approved, the lender will send you the funds for the vehicle or pay the seller directly. You will then have fixed payments each month until the car is paid off. After that, you will get your car title and own it for free.
Learn more: Fair credit personal loans
Is it better to finance a car directly through a lender or the dealership?
It depends on whether you can get better terms from a lender or through the dealer. That’s why it’s important to shop around and compare as many lenders as possible to make sure you’re getting a loan that’s best for you.
While you can apply for an auto loan after you find the car you want to buy, it’s a good idea to apply before you even start looking for a car. This way you will know how much you can afford to spend on a car.
If you’ve been pre-approved for a car loan and are working with a dealership, they might even be able to make a counter offer with a lower interest rate or better terms.
Check: $ 20,000 loan
Is 72 Month Auto Credit Bad?
It’s usually a good idea to choose the shortest loan term you can afford, as you’ll save money on interest charges over time. Also keep in mind that with a long term loan, your car could lose value faster than you can pay it off, leaving you upside down on the loan.
However, a long-term loan might get you to pay less, which might be better for your budget. You will need to decide which loan term is best for your personal situation.
Can You Get Auto Credit With Bad Credit?
You will generally need good to excellent credit to qualify for a car loan, although some lenders offer bad credit loans.
Another possible way to get approved for a loan is to apply with a co-signer. Even if you don’t need a co-signer of your loan, having one could help you get a lower interest rate than you would get on your own.
Is Applying For Auto Credit Harming Your Credit?
When you apply for a new loan, the lender will perform a credit analysis to examine your credit history. For this reason, you might see a short-term drop in your credit score if you apply for a car loan. However, a serious credit investigation usually only affects your credit for a few months.
Also, if you are approved for the loan and make all of your payments on time, you might see an increase in your credit score over time.
If you decide to take out a personal loan for your car purchase, consider considering as many lenders as possible to find the loan that meets your needs. It’s easy with Credible – you can see your prequalified rates from multiple lenders in two minutes.