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If you need to buy a car, an auto loan can help you do it. An auto loan could also be an option if you’re looking to refinance a car loan you already have.
Here’s what you should know about auto loans:
- Lenders that offer auto loans
- How to get a car loan in 4 steps
- Frequently asked questions about car loans
Lenders that offer auto loans
There are several types of lenders that offer auto loans, each with their own rates and requirements. This is why it’s important to shop around and consider multiple lenders to find the right loan 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 be able to get you the money for your car much faster than other lenders, too. With LightStream, you could have the funds deposited in your account as soon as the same business day after approval.
Many banks offer auto loans with competitive rates. Some also offer rate discounts if you already bank with them. You might also get a discount if you sign up for autopay on your loan.
Unlike online lenders and banks, credit unions are nonprofit organizations. Because of this, they sometimes offer a lower APR and better repayment terms on auto loans.
You might also get a rate discount if you sign up for automatic payments.
Depending on the credit union, you might need to live in a designated area, work in a specific field, or join a certain group to be eligible for membership.
Regardless of which 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 added expense. You can estimate how much you’ll pay for a loan using our personal loan calculator below or check for personalized low interest personal loan rates.
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With a $ loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the loan.
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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 how much you can borrow as well as your interest rate and repayment terms. As of 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 Experian. Borrowers with poor to fair credit qualified for rates between 7.14% and 13.97%. If you have less-than-perfect credit, you might need to spend some time building credit or apply with a cosigner.
- Compare lenders and choose your loan option: Be sure to compare as many lenders as possible to find the right auto loan for you. Remember to check not only rates but also repayment terms and any fees charged by the lender. If you’re buying from a dealership, there might also be in-house financing to consider as well. After doing your research, pick the loan option that best suits your needs.
- Complete the application: You’ll need to fill out a full application and submit any required documentation, such as bank statements, pay stubs, or tax returns.
- Get your loan funds: If you’re approved, you’ll need to sign for the loan so the lender can send you the money for your car.
Before you take out any loan, remember to consider as many lenders as possible to find the right one for you.
If you need help financing an auto purchase and are considering a personal loan, Credible can help you compare prequalified rates from multiple lenders in two minutes.
Frequently asked questions about car loans
If you’re considering an auto loan, here are the answers to a few common questions:
How does a car loan work?
An auto loan is secured by the car you plan to purchase. Because there’s less risk to the lender, you might be able to get a much lower interest rate on an auto loan compared to a typical personal loan, for example. Just keep in mind that if you can’t make your payments, you could lose your car.
If you’re approved for the loan, the lender will either send you the funds for the vehicle or pay the seller directly. You’ll then have fixed payments each monthly until the car is paid off. After this, you’ll get the title for your car and will own it free and clear.
Learn More: Fair Credit Personal Loans
Is it better to finance a car directly through a lender or from the dealership?
This depends on whether you can get better terms from a lender or through the dealership. This is why it’s important to shop around and compare as many lenders as possible to make sure you get a loan that works best for you.
While you can apply for an auto loan after you’ve found the car you’d like to buy, it’s a good idea to apply before you even start looking for a car. This way, you’ll know how much you can afford to spend on a car.
If you’ve been preapproved for an auto loan and are working with a dealer, the dealer might even be able to counteroffer with a lower interest rate or better terms.
Check Out: $20,000 Loan
Is a 72-month car loan 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’re able to pay it off — leaving you upside down on the loan.
However, a long-term loan could get you a lower payment, which might be better for your budget. You’ll have to decide what loan term works best for your individual circumstances.
Can you get a car loan with bad credit?
You’ll typically need good to excellent credit to qualify for a car loan, though there are some lenders who offer loans for bad credit.
Another possible way to get approved for a loan is applying with a cosigner. Even if you don’t need a cosigner for your loan, having one could help you qualify for a lower interest rate than you’d get on your own.
Read On: 15 Auto Repair Loans: Find Car Repair Financing Fast
Does applying for a car loan hurt your credit?
When you apply for a new loan, the lender will perform a hard credit pull to review your credit history. Because of this, you might see a short-term dip in your credit score if you apply for a car loan. However, a hard credit inquiry typically impacts your credit for only a few months.
Plus, if you’re approved for the loan and make all of your payments on time, you could see an increase in your credit score over time.
If you decide to take out a personal loan for your auto purchase, remember to consider as many lenders as possible to find the right loan for your needs. This is easy with Credible — you can see your prequalified rates from multiple lenders in two minutes.
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