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You can use auto loans to buy new cars, used cars, buy out a lease, and refinance existing auto loans. Every lender has its own requirements for auto loans, and individual interest rates will vary based on your credit score, the age of the car, the type of loan you’re taking out, and the amount of equity you have in the car.
Learn more about the six different types of auto loans to find one that’s best for you:
6 types of auto loans
Several different types of auto loans are available, depending on your credit score and particular situation.
- New-car loan
- Used-car loan
- Auto refinancing loan
- Lease buyout loan
- Auto loans for bad credit
- First-time car buyer loans
New-car loans are exactly what they sound like — loans that you take out to buy a new car. All other things being equal, new-car loans typically have the best interest rates out of all of the loan types listed here because new cars have the longest anticipated life.
You can get a new-car loan through a dealership, bank, credit union, or an online lender that specializes in auto loans. Dealerships frequently get a commission from the banks they partner with to offer auto loans and may offer a lower purchase price on the car you’re buying if you finance through them. That lower purchase price may come with a higher interest rate — the bank has to make back that commission somehow. Shop around to make sure you’re getting the best rate possible.
Used-car loans are available from all the same places new-car loans are. You can get a used-car loan from a bank, dealership, credit union, or online lender. You can also use these loans to buy cars from private parties, saving you thousands in dealer fees in the process.
Keep in mind that used-car loans for very old cars can be difficult to find because some auto lenders will only finance vehicles under a certain age or mileage limit. If you’re on a tight budget or looking to buy a 20-year-old beater for your teenager to learn to drive on, you may be able to get a personal loan to purchase the car with instead.
The personal loan companies in the table below compete for your business through Credible. You can request rates from all of these partner lenders by filling out just one form (instead of one form for each) and without affecting your credit score.
|Lender||Fixed rates||Loan amounts||Check rates|
|9.95% - 35.99% APR||$2,000 to $35,000**|
|11.79% - 20.84% APR||$10,000 to $50,000|
|8.99% - 35.99% APR||$2,000 to $50,000|
|7.99% - 24.99% APR|
$2,500 - $40,000
|11.72% - 24.67% APR||$3,000 to $40,000|
|9.57% - 35.99% APR||$1,000 to $40,000|
|7.49% - 25.49% APR with autopay||$5,000 to $100,000|
|18.0% - 35.99% APR||$1,500 to $20,000|
|8.49% - 17.99% APR||$600 to $50,000 |
(depending on loan term)
|14.3% - 35.99% APR||$3,500 to $40,000|
|8.99% - 25.81% APR10||$5,000 to $100,000|
|11.69% - 35.99% APR7||$1,000 to $50,000|
|8.49% - 35.99% APR||$1,000 to $50,000|
|6.4% - 35.99% APR4||$1,000 to $50,0005|
Auto refinancing loan
Refinancing your auto loan lets you replace your existing loan with a new one, which could save you thousands of dollars in the right situation. You can refinance an auto loan through many banks, credit unions, and online lenders.
If you originally purchased your vehicle when your credit score was lower and were given a very high interest rate, you may be able to get a significantly lower interest rate now, which could drastically reduce your monthly payment.
Before refinancing, make sure you consider the new interest rate, any fees, and your new monthly payment amount. Make sure that refinancing will benefit you in the end by lowering your monthly payment or allowing you to pay off your loan sooner.
When you refinance your auto loan, you can sometimes pull out any equity you have in the car. The equity you have is the difference between what the car is worth on paper and what you owe on it. Be careful when pulling out your equity, especially when refinancing into a longer loan term.
Lease buyout loan
A lease buyout loan is a loan that allows you to purchase the vehicle you’ve been leasing. You can take one out to keep the car yourself or turn around and sell it again if it’s worth more than the lease buyout and you don’t want to keep it.
Lease buyout loans are available directly through dealerships, as well as some banks, credit unions, and online lenders.
Auto loans for bad credit
Some dealerships offer financing for buyers with bad credit, but some online lenders also specialize in bad credit auto loans.
You can find legitimate bad credit auto loan lenders, but make sure you’re working with a reputable lender. You may come across“buy-here, pay-here” dealerships that specifically prey on people who struggle to get approved for vehicle financing through traditional lenders.
It’s important to still shop for rates when you have bad credit to make sure you’re not being taken advantage of. When requesting rate quotes, verify in writing that they are soft inquiries that won’t ding your credit.
With high interest rates, a huge portion of your monthly payment will go toward interest and it will take a while to build equity. Try to lower your car-shopping budget to something you can definitely afford so sudden repair costs are easy to cover. If you can’t keep up with payments, your lender can repossess your car. But you’ll be left with even worse credit and be on the hook for payments on a vehicle you don’t even have.
|Lender||Fixed rates||Credit score|
|7.99% - 29.99% APR||Does not disclose|
|9.95% - 35.99% APR||550|
|11.72% - 24.67% APR||640|
|9.57% - 35.99% APR||660|
|7.99% - 35.99% APR||660|
|7.49% - 25.49% APR with autopay||700|
|18.0% - 35.99% APR||None|
|11.69% - 35.99% APR7||560|
|8.49% - 35.99% APR||600|
|6.4% - 35.99% APR4||620|
First-time car buyer loans
Unfortunately, lenders frequently view having no credit history the same as having bad credit. If you have time before you need a car, you may be able to build credit by being added as an authorized user on someone else’s credit card or getting a secured credit card through your bank.
If you aren’t able to build credit before you buy a car, you can get financing through dealerships specializing in first-time buyers, and through some banks and online lenders. Look for dealerships near colleges or ask your existing bank if it has any loan options for first-time car buyers for the best chances of finding a good rate.
Worth Reading: How to Build Credit Fast and Effectively
How to apply for an auto loan
If you’re ready to apply for an auto loan, follow these eight steps:
- Check your credit report. You can check your credit report for free annually at AnnualCreditReport.com. If you spot any errors, you can dispute them with the credit bureau.
- Check your savings and decide how much (if any) to use as a down payment. You want to have enough left in savings to cover any repairs that could come up, plus your standard emergency fund. But you want to put enough down to get a good interest rate and save on your payments later.
- Get prequalified for an auto loan. You can use Credible’s prequalification tool to get an idea of what you’re approved for and your estimated monthly payments, all without impacting your credit score.
- Check that the monthly payment fits into your total budget. You shouldn’t miss out on rent, going to a concert with friends, or saving for your future for the sake of your car payment. Use whatever budget tracker you’re comfortable with to make sure you’re buying a car you can comfortably afford.
- Pick out a car. With your budget in mind, you can start reviewing what type of car you want and research things like estimated repair costs and longevity for certain models.
- Negotiate with the seller or dealer. Once you’ve narrowed down exactly what car you want, negotiate with whoever is selling it. Currently there is a national chip shortage so cars are in high demand with little room for negotiation, but you may still be able to get the price down.
- Pick and sign your loan. Once all negotiation is done, it’s time to decide on and sign your loan. Dealerships often tack on expensive maintenance plans and warranties at the last minute. Consider whether or not one is a sound financial choice now so you’re educated about your options when the time comes.
- Keep up with car maintenance and your monthly payments. You spent all this time picking out and buying a car, so it’s important to take care of it. Keeping up with oil changes, tire rotations, and other routine maintenance can save you thousands of dollars in repairs later. Set up automatic monthly payments so you never forget one.
When applying for an auto loan, pay special attention to these terms:
- Interest rate and APR: The interest rate on the loan is how much you’ll pay to borrow the money you need for the car. The annual percentage rate (APR) is a number that breaks down any fees and charges for the loan itself over the course of the loan. The APR is a more realistic representation of what borrowing money will cost you every year. The higher your APR, the more of your monthly payment will be going to interest and fees.
- Credit score: When you check your credit score, pay attention to any factors that may be lowering your score you can change. The Consumer Financial Protection Bureau advises that any errors can be disputed directly with the credit bureaus (Equifax, Experian, and TransUnion). If you have a high utilization percentage and have the money to pay down some of your balances without dipping into your down payment, you may be able to raise your credit score.
- Prequalification and pre-approval: Prequalification and pre-approval are frequently used interchangeably, but they’re actually different things. Prequalification is a process that estimates what you’ll be approved for and usually comes with a soft credit inquiry and no verification of income or assets. Pre-approval usually involves a hard credit inquiry and income verification and can sometimes include a firm lending offer. Credible lets you see if you’re prequalified in under two minutes without affecting your credit score.
- Loan term: As cars become more expensive, loan terms are becoming longer. Typical auto loans are for 36 to 60 months, but seven- and eight-year loan terms aren’t unheard of. Typical personal loan terms are anywhere between 12 and 60 months. Cars are depreciating assets, meaning that their value decreases over time. Go with the shortest loan term you can comfortably afford so you don’t end up trapped making payments for years on a car that can’t even take you anywhere.
When shopping for an auto loan, making sure that you have the right loan for you is crucial. Don’t be afraid to shop for rates and know what your options are. Go to the negotiating table armed with the options and knowledge to get the best deal possible.