Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, who we will always identify, all opinions are ours. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible”.
If you need to buy a car, an auto loan can help you do that. An auto loan could also be an option if you are looking to refinance an auto loan you already have.
Here’s what you should know about auto loans:
Lenders offering auto loans
There are different types of lenders offering auto loans, each with their own rates and requirements. This is why it is important to shop around and consider multiple lenders to find the right loan for your needs.
Here are some of your lender’s 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 car loans for new cars, used cars and classic cars, as well as auto refinancing.
An online lender may be able to get you the money for your car much faster than other lenders. With LightStream, you may have the funds deposited into your account as soon as the same business day after approval.
Many banks offer auto loans at competitive rates. Some even offer rate discounts if you’ve already banked with them. You may also get a discount if you sign up for automatic payment on your loan.
Unlike lenders and online banks, credit unions are non-profit organizations. For this reason, they sometimes offer a lower APR and better repayment terms on auto loans.
You may also get a discount on the rate if you sign up for automatic payments.
Regardless of which lender you choose, it’s a good idea to consider how much an auto loan will cost you over time. That way, you can be prepared for the additional expense. You can estimate how much you will pay for a loan by using our personal loan calculator below.
Enter the loan information to calculate how much you could pay
loan, you will pay
monthly and a total of
in interest for the entire duration of the loan. You will pay a total of
for the entire duration of the loan.
Do you need a personal loan?
Compare rates without affecting your credit score. 100% free!
Check out the custom rates
The rate check will not affect your credit score.
To know more: Where to get a personal loan
How to get a car loan in 4 steps
If you are ready to get a car 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 Esperian. Borrowers with poor to fair credit qualified for rates between 7.14% and 13.97%. If you have less than perfect credit, you may need to take the time to create credit or apply with a cosigner.
- 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 credit institution. If you are buying from a dealership, there may also be internal financing to consider. After doing your research, choose the loan option that best suits your needs.
- Complete the question: You will need to complete a complete application and submit all required documentation, such as bank statements, pay slips or tax returns.
- Get your loan funds: If you are approved, you will need to sign up for the loan so that the lender can send you the money for your car.
Before taking out any loan, remember 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 Car Loans
If you are considering a car 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 purchase. Since there is less risk to the lender, you may be able to get a much lower interest rate on a car loan than on a typical personal loan, for example. Keep in mind that if you can’t make payments, you could lose your car.
If you are approved for the loan, the lender will either send you the funds for the vehicle or pay the seller directly. You will then have fixed payments every month until the car is paid for. After that, you will get the title for your car and own it for free and clearly.
To know 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 deal 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 a car loan after finding 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 an auto loan and are working with a dealership, the dealership may even be able to counteroffer with a lower interest rate or better terms.
Check-out: Loan of $ 20,000
Is a 72 month car loan bad?
It is usually a good idea to choose the shortest loan term you can afford, as you will save money on interest expense over time. Also keep in mind that with a long-term loan, your car could lose value faster than you are able to pay it off, leaving you upset on the loan.
However, a long-term loan might get you a lower payment, which might be better for your budget. You will need to decide which loan term works best for your individual circumstances.
Can you get a car loan with bad credit?
You will typically need good to excellent credit to qualify for a car loan, although there are some lenders that offer bad credit loans.
Another possible way to get approved for a loan is to apply with a cosigner. Even if you don’t need a cosigner for your loan, having one could help you benefit from a lower interest rate than you would get on your own.
Read on: 15 Auto Repair Loans: Find Auto Repair Loans Quickly
Does applying for a car loan damage your credit?
When you apply for a new loan, the lender will perform a hard credit extraction to review your credit history. Because of this, you may see a short-term drop in your credit score if you apply for a car loan. However, a hard credit application typically only affects your credit for a few months.
Also, if you are approved for the loan and make all payments on time, you may see an increase in your credit score over time.
If you decide to take out a personal loan for the purchase of your car, 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.