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How to get a car loan


Best car loans 2016

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For most people, the best auto loans are the ones with the lowest rates. And unless you’re lucky (or disciplined) enough to be sitting on a small pile of cash, chances are you’ll need to find the best car loan rates to buy your next vehicle.

But who should get your business? The list of options is staggering: You can nab a car loan at your local credit union, a behemoth bank, a car dealer, an online lender, and just about everywhere in between. And whether it’s low interest rates, cheap gas, rising car prices, or a combination of all three, the car-loan market more heated than ever: Americans borrowed an all-time high of $968 billion to finance their cars in the third quarter of 2015.

Best Online Auto Loan Services


CarsDirect is best known as a car-buying service, but it also provides a portal for getting the best auto loan. It provided a wider range of customer-friendly information than its competitors, including a loan calculator, trade-in-value calculator, and dozens of articles about car loans and buying strategies.

There’s also no minimum or maximum amount for which you can apply. For instance, some companies won’t allow you to apply for any less than a $5,000 or $10,000 loan, or won’t even consider a loan for a car with higher mileage.

A downside here (and for most online auto-loan services) is that after submitting your information, you may field calls or emails from lenders even after making your selection. And if you despise spam as much as I do, that might be a deal-breaker for you.

Who it’s good for: Someone who needs a smaller-dollar car loan or wants an older used car should see what kind of offers they get with CarsDirect. If you’re thinking of refinancing, that’s also an option. CarsDirect is also a good pick for customers who may need to read up on car-buying. There are a lot of beginner-friendly topics such as how car loan interest works and how much cars depreciate in value after you buy, but there are also some more in-depth reads: for instance, the danger of paying off car loans with a home equity line of credit or how to safely take over someone else’s lease.

Who should pass: CarsDirect is a lead generator, so if you would be bothered by several calls from interested lenders, you’ll want to go elsewhere.


MyAutoLoan also connects customers with lenders for all major loan types, with the added bonus of allowing applications for lease buyouts.

A handy interest-rate estimator helps you get an idea of what you should expect to pay for a loan based on your credit score, location, and type of loan. For example, if I’m looking at a $25,000 new car loan in Knoxville, Tenn., with excellent credit, I might expect an average APR of 2.76%, but if I’m looking at the same loan in Los Angeles with average credit, my average APR would be 8.61%.

There are extensive FAQs to answer customer questions such as “Will applying for a loan hurt my credit score?” and “Do I have to use the full loan amount?” There are also calculators that help you estimate what you can borrow and what your payment will be for a certain loan amount.

Who it’s good for: This is another good option for first-time buyers looking for information on how to get a good deal, and it’s worth a look for anyone who wants to work with lenders to purchase their leased vehicle.

Who should pass: Again, anyone who doesn’t want to talk to several lenders should avoid a service like MyAutoLoan. This also won’t be an option for customers seeking smaller loans, older vehicles, or both. You must apply for a minimum of $5,000 and be looking at a car from 2006 or later with fewer than 100,000 miles on it. You must also have a minimum monthly income of $1,800.

Best of the Big Banks

U.S. Bank

U.S. Bank offers the best blend of loan options, competitive interest rates, and consumer-friendly information of the big-bank lenders. Its loan options include loans for cars purchased from private sellers, which many big banks shun. U.S. Bank also doesn’t automatically penalize used-car buyers with a higher interest rate, as long as the car is less than six years old and has fewer than 100,000 miles.

The auto-loan process is also very clearly detailed for prospective customers, and a special “green car” discount program reduces interest rates by 0.5% for buyers who choose certain fuel-efficient, EPA-certified “SmartWay” vehicles. If you’re afraid that might limit you to an electric car or a Toyota Prius, you may be pleasantly surprised at the number of qualifying vehicles: There are 22 options in the family sedan category alone.

Who it’s good for: U.S. Bank should be a contender for any customer who wants the security of working with a large bank, but particularly for those who want a loan to buy a vehicle from a private seller. If you’re in the market for a fuel-efficient vehicle, you may also get an interest-rate break.

Who should pass: Skip U.S. Bank if you’re thinking of a lease buyout. It’s also worth noting that U.S. Bank didn’t fare well in J.D. Power’s most recent customer satisfaction survey for auto financing. It rated below average — but to be fair, so did most bigger banks. The top of that list is dominated by the financing arms of luxury car makers, including Mercedes-Benz, BMW, and Infiniti.


LightStream, an arm of SunTrust Bank, is a compelling option for customers with top-notch credit. Rates start at a rock-bottom 1.99% for both new- and used-car loans.

The company’s “Anything Loan” doesn’t require a lien against your car, and qualifying involves very little time and paperwork. LightStream also matches other lenders’ offers and has a $100 guarantee for unsatisfied customers — if you’re unsatisfied within the first 30 days after getting a loan, they’ll give you $100 once you complete a service questionnaire.

The major downside here is that Lightstream is very picky about customers: Aside from great credit, you’ll likely need to show a very healthy income and assets to be approved. There’s also little in the way of car-buying advice on their site.

Who it’s good for: LightStream is an excellent pick if you have great credit, substantial income, and want a loan fast. It’s also worth a look if you’re considering a vehicle such as an RV or a motorcycle.

Who should pass: Any credit blemishes? You probably won’t qualify. And despite being backed by SunTrust, you won’t have the benefit of conducting business offline if you’d rather have a more personal experience.

Bank of America

Bank of America provides all kinds of auto loans, including loans for cars purchased from private sellers and lease buyouts. The bank allows loans for vehicles up to 10 years old with 125,000 miles.

Interest rates are also competitive, and current Bank of America customers are eligible for interest-rate reductions. You can do business at one of more than 5,000 branches or manage your account with extensive online-banking tools.

However, customer service rankings aren’t the best, and you won’t be allowed to take your business to independent car dealers that sell a variety of makes and models.

Who it’s good for: Anyone who wants the option to do business in person will appreciate Bank of America’s huge network of branches, and the bank allows loans for slightly older and higher-mileage vehicles.

Who should pass: Like U.S. Bank, Bank of America hasn’t fared well in the latest J.D. Power auto-loan customer satisfaction survey, so keep that in mind. You’re also out of luck if you want a loan to use at an independent dealer.

Best Auto Loans for Bad Credit

Auto Credit Express

Auto Credit Express specializes in helping car buyers with poor credit, and that knowledge often translates into more options and better interest rates. The company works with customers who have declared bankruptcy, and it allows loans to special-finance dealers. (These can include “buy here, pay here” and rent-to-own lots — not options we normally recommend, but if you’re truly in a bind, you may not have a choice.)

It doesn’t restrict you from applying based on loan amount, vehicle age, or mileage, which is particularly crucial for bad-credit customers who may not be able to consider newer, pricier cars. The company has many good customer reviews, including an A+ from the Better Business Bureau.

Who it’s good for: Bad-credit buyers who want a lot of options will want to check out Auto Credit Express, which eschews common restrictions in favor of considering loan applications on a case-by-case basis.

Who should pass: You won’t be able to get a loan from Auto Credit Express to buy a car from a private seller, which is a bummer for anyone hoping to bypass dealers who might tie loan approval to a certain kind of car.

Capital One

If you prefer to keep your business with a household name, Capital One is worth a look. Capital One is one of the largest lenders willing to take on customers with less-than-stellar credit.

Interest rates are competitive, there are helpful loan calculators, and you can get pre-approved and compare payments on specific cars with the Auto Navigator tool. FAQs cover everything from what to expect at the dealer to what documentation you need to secure a loan. More than 12,000 dealers accept Capital One financing, and online account management tools are extensive.

Who it’s good for: If you want the confidence of going with a very well-known lender that works with poor credit customers, Capital One could be the ticket. Residents in certain mid-Atlantic and Southern states will also have the option of doing business in person at Capital One’s extensive branch network.

Who should pass: If you have your eye on a higher-mileage or higher-dollar used car, you may not be able to get a loan: Capital One imposes stricter limits on loans it will make (it caps them at a relatively low 70,000 miles and $30,000 for used cars, for example). Capital One also won’t make loans for private-seller transactions.

Seven Tips for Getting the Best Car Loan Rates

Now that you know some of the best spots to look for an loan, let’s talk about some more general strategies that you can exploit to make sure you land the best rates — wherever you decide to borrow.

#1: Shop around before you go to the dealer

Never assume the dealer will offer you the best rate, especially if your credit isn’t perfect. Compare interest rates from outside sources (banks, credit unions, online auto-loan companies) and get pre-approved for the best loan you can find before you head to the dealer.

Why is it important to get approved instead of relying on dealer financing? A few reasons:

  • First, you’ll have more leverage to negotiate an even better rate with the dealer’s preferred lender, but the deal won’t depend on it.
  • Second, you’ll know what kind of rates you should be able to get, so it will be easier to tell whether the dealer has added a markup on the interest rate they’re offering through whatever lender they’ve partnered with.
  • Third, you know what you can comfortably afford going in, which reduces the chance that the dealer will upsell you on a more expensive car.

#2: Know your credit score

Your credit score is the single most important factor in what kind of interest rate you can land. Excellent credit means a better rate. Bad credit means a lousy rate — if you can qualify at all.

Check out the table of data below from myFICO for more of an idea on how your credit can affect your rate, which in turn affects what you pay each month and what you shell out over the life of the loan. The table assumes a $20,000 new-car loan with a four-year term. Interest rates are national averages as of November 2015:

Credit Score
Monthly Payment
Total Interest Paid

Look at the stark difference between interest rates for customers with the highest credit and lowest credit scores. While an extra $100 a month for your car loan payment might not seem unreasonable, check out how it adds up over the long term: You’d be paying a premium of more than $5,000 if you have bad credit.

Use a service such as Credit Karma or Identity Guard to check on your credit score before you start shopping. Also, remember that when prospective lenders run a check your credit, your credit score can go down. If you limit your shopping to a two-week period, your score won’t take multiple hits, according to Bankrate.

#3: Sign up for a shorter loan term

As with any other loan, you’ll pay less in the long run if you can compress your payments into a shorter period. Check out the table below, based on data I obtained from this Bankrate calculator. It assumes a loan of $20,000 and an APR of 5%.

Loan Term
Monthly Payment
Total Interest Paid
36 months (3 years)$599.42$1,579.05
48 months (4 years)$460.59$2,108.12
60 months (5 years)$377.42$2,645.48
72 months (6 years)$322.10$3,191.10
84 months (7 years)$282.68$3,744.97

While it might seem like a longer term is the way to go because of lower monthly payments — who wouldn’t want to pay under $300 versus nearly double that? — remember to consider the long term. If you could pay off your loan in three years, you’d pay just $1,579 in interest. If you opted for a lengthy seven-year term, you’ll be paying $3,745 in interest — more than twice as much — not to mention budgeting for a car payment for four extra years.

Beware of dealers who try to sell you on a car by showing you how low your monthly payment can be. This tactic simply boosts their bottom line by diverting your attention from the purchase price, driving it higher along with your loan amount.

#4: Buy new — maybe

It’s usually easier to land a better interest rate if you’re buying a new car instead of a used car. Average interest rates for used cars can be significantly higher than they are for new cars. That’s mainly because people seeking loans for used cars tend to have lower credit scores than people who need a new-car loan.

Of course, the fact that new cars lose so much of their value immediately after you take possession is still a compelling reason to look at used cars, and that’s the reason why they’re the best deal most of the time. But be sure to consider the better financing you might receive on a new car while you’re making your decision. Similar sticker prices — for instance, if you’re comparing a new mid-range car and a used luxury car — could tip the balance in favor of the new car.

#5: Don’t pay for ‘extras’ with your loan

Car dealers make a lot of money on all the little extras they will inevitably offer you. These extras could include extended warranties or upgrades like rust-proofing, fabric protection, and security systems.

Most experts warn that purchasing these add-ons rarely makes sense. But rolling them into your loan makes even less sense — the interest means you’ll be paying even more for these extras in the long run.

If there’s an add-on you must have, purchase it separately. For the same reason, consider paying sales taxes, registration fees, and other tacked-on expenses separately.

#6: Exploit interest-rate discounts

Many lenders will knock a little bit off your rate if you sign up for automatic payments or pay your bill online. Others may give you a discount if you have a previous banking relationship with them or you’re purchasing a specific type of car. Don’t assume you’ll be told of these potential savings — always ask.

#7: Consider 0% interest deals, but do your homework

You’re not going to find a 0% interest rate offer at banks or credit unions, but you may find them offered at the dealership by your car manufacturer’s lender. It sounds too good to be true, but if you have excellent credit, you may be able to nab such a deal.

However — and of course there’s a “however” with this deal — you may have to take a 0% interest deal instead of another promotion like a $1,500 rebate.

You’d have to do the math to figure out whether the 0% interest would save you more than $1,500 over the life of your loan, or whether you would be better off taking the rebate and using a low-interest loan on the reduced amount.

For instance, say I’m offered 0% financing for four years on a $20,000 loan. I would pay about $417 a month for those four years, according to this calculator at Edmunds.com.Alternatively, I might be offered $1,500 cash back and an APR of 2.99% on a loan of the same term. In that case, I’m actually only paying $409 a month. So despite the interest-rate hike, I come out $7 ahead each month because I reduced my loan principal from $20,000 to $18,500.

Also, be careful to check the loan terms with 0% deals — they tend to be shorter. The lender may only offer the deal for a three-year term, for instance. That means your monthly bills will be much higher than they would be if you opted for a loan with a longer term. You’ll pay less in the end, but you have to find room in your budget for the higher car payment.

How I Picked the Best Auto Loans

Most people choose their auto-loan company based on who provides the lowest interest rates. Of course, whether you can land a competitive interest rate largely depends on your credit and the car you’re buying. For that reason, I considered many other factors besides interest rates, which I’ll detail further down.

You won’t want to overlook local banks and credit unions in your search. There is a lot of competition for auto loans, so you may be able to find competitive rates locally with the added benefit of a firm handshake, better customer service, and a personal relationship with your lender.

Credit unions can be a particularly good place to look. As nonprofits, they have lower overhead (which can mean better interest rates) and lower fees. On the downside, your loan application and approval process may be a bit more lengthy or cumbersome.

Finally, I did not look at manufacturer-specific lenders such as Ford Credit or Honda Financial Services. These lenders tend to be rated more highly than general lenders for overall customer satisfaction, so they are certainly worth a look if they can give you the best interest rate on the car you want. However, because they restrict their services to one manufacturer, I did not include them in my analysis.

The best auto loan lenders and services provided:

  • All or most major loan types: The best lenders offer loans for new and used cars, refinancing, and (less commonly) lease buyouts. Used-car loans are available even when you’re buying from a private party, not just a dealer.
  • Instant or same-day online approval: You’re probably eager to get your hands on a new (or new-to-you) car. Chances are you don’t want to wait around for a lender to get back to you. I also immediately discounted lenders who do not allow customers to at least begin the approval process online.
  • Online payment calculators and other resources: The best lenders provided calculators for prospective customers to calculate their monthly payment at certain interest rates and repayment terms. Bonus points went to lenders who also offered tools to help determine the worth of a trade-in vehicle or general car shopping tips.
  • Comprehensive customer support: The best lenders had very detailed FAQs (frequently asked questions) as well as multiple methods of contact for customer support (such as email, phone, and online chat).
  • Competitive interest rates: Advertised interest rates from the best lenders had to significantly beat Bankrate’s national average for new and used cars.
  • Solid customer service: I considered how lenders fared in J.D. Power’s 2015 Consumer Financing Satisfaction Study, if applicable. While I looked at online reviews, I didn’t give them much weight (the majority of complaints about car loans are from customers who were denied based on highly personal factors, including their credit).

You’re in the Driver’s Seat When Shopping for the Best Car Loans

Whether or not you’re a buyer with perfect credit, competition for the best car loans is fierce. Use that to your advantage by doing a lot of comparison shopping before you sign on the dotted line.

Remember to look up your most recent credit score, consider possible discounts and loan terms, and be aware of how every piece of the puzzle can affect your bottom line. Consider beginning your search with the companies profiled above — all are solid choices.

If your credit is less than perfect, our guide to the Best Bad Credit Auto Loans will give you more options and tips on shopping strategies, including how to avoid scams. While you may pay a higher interest rate, you’ll be pleased to know that competition for your business is still heavy.

Once you’ve found a great car and a great loan, make sure you have the right car insurance. Our guide to the Best Car Insurance Companies can help you separate the best companies from the rest in a crowded market. Its companion article, How to Get Cheap Car Insurance, takes a more in-depth look at strategies you can use to keep your insurance bill low, no matter what company you use.