Finding the best auto loan rates is important because these interest rates can significantly impact the total cost of a vehicle. There are many factors that determine auto financing rates, but the most important is your credit score.
Consumers Credit Union, myAutoloan, PenFed Credit Union and iLending offer the best car loan rates for new and used purchases and refinances. These lenders also offer flexible loan terms.
A good auto loan rate depends on your credit score, finances and lender as much as the vehicle you buy. Compare rates online and at your local lenders, credit unions and dealerships to find the best offer for your situation. Read all terms and conditions carefully, including mandatory binding arbitration, prepayment penalties and other fees and expenses.
Rates vary by lender and type of loan, with some banks offering higher rates than others. A good way to compare rates is to use an online lending marketplace that lets you shop several lenders at once. This can help you understand what your options are and can put you in a better position to negotiate financing at the dealership.
Credit unions are another option to consider, especially if you have a good relationship with them. Because they aren’t designed to make a profit, they can often offer lower auto loan rates than banks. The National Credit Union Administration estimates that the average auto loan rate for new and used vehicles at a credit union is 2.9 percent, which is well below the national average of 4.71 percent.
The difference between the highest and lowest auto loan rates can add up to thousands of dollars over the life of a loan. The biggest factor that determines your loan rate is your credit report. People with the highest scores typically receive the lowest rates, while those with lower credit get the highest rates.
Other factors can influence your rate, such as income requirements and the loan-to-value ratio for new cars. You can try to lower your rate by making a down payment or adding a cosigner. Some lenders also offer discounts for customers who set up automatic payments or have other relationship accounts with the company, which can save you money over time.
You can apply for an auto loan with a traditional bank, such as Bank of America or Chase, a credit union like USAA or Boeing Employees Credit Union or an online lender, such as Capital One or Up2Drive. The rates and requirements will vary by lender, so it’s important to shop around. The best way to know what your potential interest rate will be is to get preapproved. This will give you a firm understanding of what you can afford to spend on a car, and it puts you in a stronger position during negotiations at the dealership.
To be preapproved, you’ll typically need to provide your credit score and information about other debt payments. Lenders will also consider your income and other financial factors when determining your eligibility for an auto loan. However, your credit score is the biggest factor that determines your auto loan rate. Borrowers with higher credit scores generally receive lower rates than those with lower credit scores.
Another way to reduce your auto loan interest rates is by buying a used or certified pre-owned vehicle. These vehicles are usually much cheaper than new models, and they will still have warranty coverage for peace of mind. Plus, you can save even more money by making a larger down payment. This will reduce the amount of financing required and reduce your loan-to-value ratio, which can lead to lower interest rates.
PenFed offers a secure, convenient online application process that only requires applicants to be members of the credit union and to have a valid Social Security number or tax identification number. This application can be done from a computer, smartphone or tablet, and it only takes about 20 minutes to complete. Getting a preapproval letter from PenFed can help you avoid the stress of haggling at the dealership and put you in a better position when negotiating your auto loan terms.
Buy a Used or Certified Pre-Owned Car
It’s long been a common piece of financial wisdom to buy a used car instead of a new one. This may be especially true in today’s economic climate, where buying a new vehicle may no longer make sense financially. With auto loan rates rising, many shoppers who would normally have sought out a new car might find themselves with less-than-fantastic credit, and unable to qualify for the loans necessary to afford a new vehicle.
For these shoppers, a certified pre-owned (CPO) used vehicle might be the answer. CPO cars are often more reliable than a standard used car, and are typically backed by warranty coverage from the original vehicle manufacturer.
Unlike regular used vehicles, which are sold without any guarantee of quality, certified pre-owned cars undergo a rigorous inspection process. This includes a thorough test drive, and a review of maintenance records. Many dealerships will also offer a warranty on the car, which covers repairs to some specific systems or components. Moreover, some certified-used car programs include complimentary maintenance for a certain period of time and/or mileage limit.
While these benefits can be attractive, it’s important to remember that a CPO vehicle will cost more than a similar non-certified model. According to Kelley Blue Book, this premium can range from a few hundred dollars to several thousand. Additionally, CPO models tend to be priced higher than comparable used cars that aren’t certified, because dealerships want to move them quickly. This is especially true during holidays like Black Friday and Christmas, when dealers might be willing to offer a discount in order to clear out older vehicles for the new year.
Make a Larger Down Payment
One of the biggest factors that influence auto loan rates is your credit score, but you can also make a large down payment to help improve your chances of getting an excellent rate. The reason for this is that when you make a larger down payment, you’re borrowing less money and therefore putting less risk on the lender.
To help mitigate the risk of lending money to you, lenders evaluate how much of a risk it is to give you an auto loan by assessing your credit report and other financial information. One way that they determine this is by looking at the loan-to-value ratio (LTV), which calculates how much you want to borrow compared to the value of the car. Lenders generally prefer to have low LTVs, so they reward borrowers with them by giving them excellent auto loan rates.
You can try to lower your LTV by making a larger down payment or by taking out a shorter loan term. However, it’s important to consider how these changes may impact your budget. It is possible that making these changes will increase the amount of your monthly car payments and could potentially lead to an overabundance of debt that can have lasting negative impacts on your credit.
You can shop around for the best car loan rates by comparing offers from different lenders, checking prequalification quotes and looking at what options your credit union or bank has to offer. Additionally, you can take steps to improve your credit score before applying for an auto loan and try to find a cosigner to qualify for a lower rate. This can help you save thousands of dollars on a used car or get a great new vehicle at an affordable price.
Improve Your Credit Score
Lenders use your credit score to determine how much risk they’re taking on you and what interest rate they’ll offer you. The higher your score, the more likely it is that you’ll get lower rates.
If you’re interested in buying a car and want the best rates, you can take a few steps to improve your score. These steps include: paying your bills on time, not opening too many credit cards or loans and lowering the amount of debt you have. It won’t be easy, but it will help you qualify for a better loan deal.
The lender you choose to work with also plays a role in your auto loan rates. Banks, credit unions and online lenders offer different options for borrowers with various credit profiles. They can also provide a more competitive auto loan rate than what you might find at a dealership.
Some online lenders specialize in borrowers with bad credit, which means that their loan products and application process are designed to work around challenges associated with having less-than-perfect credit. The myAutoloan and AutoPay marketplaces, for example, are two examples of lenders that offer borrowers with poor credit the chance to shop for new and used cars with the best possible interest rates.
Whether you’re shopping for a new or used vehicle, the best way to keep your auto loan interest rates as low as possible is to make sure that you have enough money to pay off the full amount of the car or truck within the loan term. This will reduce your overall loan cost and allow you to build your credit score without incurring late fees or other penalties for making payments on time.
Improving your credit score is a valuable strategy for securing better auto loan rates. By following the steps outlined in this guide, you can work towards enhancing your creditworthiness and increasing your chances of obtaining favorable loan terms:
- Check your credit report: Obtain a copy of your credit report and review it for any errors or inaccuracies. Dispute any mistakes to ensure an accurate representation of your credit history.
- Pay bills on time: Make timely payments on all your credit accounts, including credit cards, loans, and utility bills. Payment history is a crucial factor in determining your credit score.
- Reduce credit card balances: Aim to keep your credit card balances low, ideally below 30% of your credit limit. High credit card utilization can negatively impact your credit score.
- Pay off existing debt: Work towards paying off existing debts, such as personal loans or credit card balances. Lowering your overall debt level demonstrates responsible financial management.
- Avoid opening new credit accounts: While it can be tempting to open new credit accounts, doing so can temporarily lower your credit score. Minimize new credit applications when you’re planning to apply for an auto loan.
- Maintain a mix of credit types: A healthy credit mix, including a mix of installment loans (like auto loans) and revolving credit (like credit cards), can positively impact your credit score. However, only pursue credit that you truly need.
- Build a positive credit history: Establish a positive credit history by consistently using credit responsibly over time. Maintain a long-standing relationship with your credit accounts and avoid closing old accounts unless necessary.
- Monitor your credit: Regularly check your credit score and monitor your credit activity. Many credit monitoring services provide free access to your credit score and alerts for any changes or suspicious activity.
By implementing these strategies, you can improve your credit score and enhance your creditworthiness, increasing your chances of securing better auto loan rates.
Frequently Asked Questions (FAQs):
- How long does it take to improve a credit score?
The time it takes to improve a credit score varies depending on individual circumstances. It generally takes several months of consistent positive credit behavior to see significant improvements. Patience and persistence are key.
- Will checking my credit score affect my credit?
Checking your own credit score through reputable sources, such as credit bureaus or reputable credit monitoring services, does not negatively impact your credit score. It’s considered a soft inquiry and has no effect.
- Can I get an auto loan with no credit history?
It may be challenging to secure an auto loan with no credit history. Consider building credit by starting with a secured credit card, becoming an authorized user on someone else’s credit card, or applying for a credit-builder loan to establish a credit history.
- Should I pay off my existing debt before applying for an auto loan?
Paying off existing debt can improve your credit score and debt-to-income ratio, potentially increasing your chances of securing better auto loan rates. However, consider your overall financial situation and budget before making such decisions.
- Can I negotiate auto loan rates with lenders?
Yes, you can negotiate auto loan rates with lenders. Use pre-approval offers and competitive rates from other lenders as leverage when negotiating. Be prepared to provide documentation of your creditworthiness and financial stability.
Remember that improving your credit score is a gradual process, and it’s important to consistently practice responsible financial habits. Consult with a financial advisor or credit counselor for personalized guidance and advice on improving your creditworthiness.