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The Bankrate guide to choosing the best auto loans
A car loan allows you to borrow the funds needed to purchase a vehicle. The vehicle you’re buying serves as collateral for secured loans like car loans.
In this narrative, there is both good and terrible news. Even if you can’t repay the loan, having collateral can enhance your chances of qualifying for lower interest rates and more favourable terms for a car loan.
Auto loans typically have set interest rates and periods ranging from two to seven years, although you can negotiate other terms with your lender.
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Check the APRs of several lenders to ensure that you get an affordable vehicle loan. It’s critical to choose a lender with low costs and short repayment durations. The information shown here is up to date at the time of publication. For the most up-to-date information, please visit the lender’s website. APRs, loan amounts, fees, credit standards, and other considerations all play a role in determining which lenders are included in this list.
Best auto loan rates in October 2021
| Lender | Current APR | Terms | Loan Amount |
|---|---|---|---|
| LightStream | 2.49% to 11.89% (with autopay) | 24 to 84 months | $5,000 to $100,000 |
| Bank of America | Starting at 2.59% | 48 to 72 months | Starting at $7,500 |
| Capital One | Not specified | Not specified | Starting at $4,000 |
| Carvana | Not specified | 36 to 72 months | Not specified |
| my auto loan | Starting at 2.49% | 24 to 72 months | Starting at $8,000 |
What are car loans and how do they work?
The collateral of the car you’re buying serves as security for a secured loan. The interest rate and monthly payment are usually fixed for 24 to 84 months, after which your car will be paid off. Many dealerships offer financing, but vehicle loans can also be obtained from banks, credit unions, and online lenders.
Auto loans, in comparison to unsecured lending choices such as personal loans, usually have cheaper interest rates because they are secured. According to Bankrate’s research, the average APR for October 6, 2021 will be as follows.
New car
- 36-month term: 3.84 percent
- 48-month term: 3.88 percent
- 60-month term: 3.89 percent
- 72-month term: 3.98 percent
Used car
- 36-month term: 4.31 percent
- 48-month term: 4.50 percent
- 60-month term: 6.12 percent
What to know before applying for an auto loan
Before choosing a lender, research various options to discover the best vehicle loan deal. When it comes to accepting you for a loan and determining your interest rate, lenders employ a variety of ways.
In general, your credit score has the most influence on the prices that are offered. If you have a good credit score, you’ll get a cheaper APR. With a higher credit score, you may also be able to access a broader selection of loan options and interest rates. Although you’ll pay more in interest overall, opting for a lengthier repayment term will reduce your monthly payments.
If you go through a preapproval procedure with a couple lenders you prefer, you’ll be able to see what rates you qualify for without impacting your credit score.
Auto loan rates by credit score
| Credit Score | Average APR New Car | Average APR Used Car |
|---|---|---|
| 781–850 | 2.34% | 3.66% |
| 661–780 | 3.48% | 5.49% |
| 601–660 | 6.61% | 10.49% |
| 501–600 | 11.03% | 17.11% |
| 300–500 | 14.59% | 20.58% |
Source: Experian State of the Automotive Finance – Q2 2021
Can I get an auto loan with bad credit?
With bad credit, you can receive a car loan, but your rates will be higher. If you’re having difficulties being approved or finding reasonable prices, try the following steps:
- Get your credit rating up by paying down as much debt as you can and avoiding opening new accounts, such as credit cards.
- You could qualify for lower interest rates by making a larger down payment. Higher down payment will reduce your monthly payment.
- Co-signers will be responsible for your loan if you default, but they can also help you qualify.
How do I get a car loan?
Receiving a car loan follows the same steps as getting any other loan. The following is how it works:
Because many lenders provide different vehicle loan rates and terms, it’s usually wise to shop around.
- You should seek out lenders who would provide you with a reasonable annual percentage rate (APR) and repayment terms.
- You can see your possible rates without a hard credit check when you prequalify with lenders.
- To complete your application, you’ll need numerous items related to your vehicle, including the title, registration, and purchase agreement.
- A valid driver’s licence as well as evidence of income are required.
- You will begin making payments on your auto loan as soon as it is authorised.
- You can create a reminder to remind you to pay your monthly bills and, if required, avoid late payments.
Best auto loan lenders in 2021
- Best overall: LightStream
- is the best big bank option
- while Capital One is the most convenient
- Carvana: Fully online banking
- myAutoLoan: Most convenient way to compare loans
LightStream: Best overall
LightStream’s auto loan choices are ideal for people with decent to exceptional credit. New automobiles, used cars from dealers or private sellers, lease-purchase agreements, vintage car financing, and other types of car loans are available.
A new car loan is typically little over $36,000, with most borrowers opting for a 72-month term. To finance that amount, LightStream now offers an APR of 4.94 percent to 10.39 percent (including a 0.5 percent discount for borrowers on auto-pay). LightStream also provides loans ranging from $5,000 to $100,000 that can be disbursed the same day you apply (if approved). The company even provides a Rate Beat Program, in which it will beat a competitor’s APR by 0.1 percentage points (subject to certain terms and circumstances).
Watch out: Autopay is required for the best terms from LightStream, and longer loan terms come with higher interest rates.
| Lender | LightStream |
|---|---|
| Min. Credit Score | 660 |
| Starting APR | 2.49% (with autopay) |
| Loan Amount | $5,000 to $100,000 |
| Term Lengths | 24 to 84 months |
| Min. Annual Income | Not specified |
| Fees | None |
Bank of America: Best big bank option
You can apply for auto loans directly on the Bank of America website. The loans are adaptable and practical. Customers of Bank of America may be eligible for additional savings.
The vehicle must be no more than 10 years old, have no more than 125,000 miles on it, and be worth at least $6,000, according to Bank of America. The company will finance up to $7,500 ($8,000 in Minnesota) with a minimum car value of $6,000. Bank of America’s APR for a new automobile starts at 2.89 percent, while the rate for a used car starts at 2.99 percent.
Customers with Bank of America Preferred Rewards may be eligible for a rate reduction of up to 0.5 percent.
You can only apply for terms of 48, 60, or 72 months if you’re applying online.
| Lender | Bank of America |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | 2.59% |
| Loan Amount | Starting at $7,500 ($8,000 in Minnesota) |
| Term Lengths | 48 to 72 months |
| Min. Annual Income | Not specified |
| Fees | None |
Capital One: Best for convenience
Capital One will lend you up to $4,000, but you must buy the automobile from one of their participating dealers. If you utilise them for finance, you can handle your auto loan and vehicle purchase all in one place.
You can use Capital One Auto Navigator to compare different manufacturers, models, and features to discover how they effect your monthly payment.
The knowledge you’ll get from this will assist you in making an educated selection. You can also check your rate with a quick prequalification utilising a soft inquiry, which won’t harm your credit score.
Capital One vehicle finance is only available at participating dealerships, so if you find a car you like elsewhere, this is not the best option.
| Lender | Capital One |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | Not specified |
| Loan Amount | Starting at $4,000 |
| Term Lengths | Not specified |
| Min. Annual Income | $18,000 or $21,600 |
| Fees | Late fee |
Carvana: Best fully online experience
The Carvana procedure allows you to have a one-of-a-kind car shopping experience while also securing a competitive car loan rate and term.
Carvana is an excellent alternative for people looking for a new car from the comfort of their own home, as well as those with bad credit.
You must be at least 18 years old, earn $4,000 per year, and have no active bankruptcy filings to join Carvana. Because a hard inquiry is only done if you place an order, your credit score will not be affected when you prequalify; Carvana does not run a credit check when you prequalify.
Following prequalification, you have 45 days to purchase a car from Carvana’s inventory, which you can pick up, have delivered, or travel there and drive back to your house.
| Lender | Carvana |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | Not specified |
| Loan Amount | Not specified |
| Term Lengths | 36 to 72 months |
| Min. Annual Income | $4,000 |
| Fees | Varies |
myAutoLoan: Best for shopping for multiple loan offers
If you want to evaluate multiple loan offers without wasting a lot of time, MyAutoLoan is an excellent alternative. You will obtain various loan offers in one spot if you enter your information only once.
Benefits: You will receive up to four estimates from different lenders after completing a single online loan application.
Age 18 or older, a household income of $21,000, a FICO score of 575 or higher, and a car that is 10 years old or newer with less than 125,000 miles are the minimum conditions for the loan programme. You won’t have to compare several loans if you compare multiple auto loan offers at the same time. You’ll be able to choose the one with the lowest interest rate, shortest term, and terms that work best for you and your budget.
If you have bad credit, you may be charged a high interest rate.
Furthermore, most states are qualified to use this platform, with the exception of Alaska and Hawaii.
| Lender | my auto loan |
|---|---|
| Min. Credit Score | 575 |
| Starting APR | 2.49% |
| Loan Amount | Starting at $8,000 |
| Term Lengths | 24 to 72 months |
| Min. Annual Income | $21,000 |
| Fees | Not specified |
Frequently asked questions about auto loans
Who has the best rates for car loans?
Your credit score, employment history, and where you live determine which company can offer you the lowest auto loan rates. Getting the best deal requires you to shop around at least three times.
Is a 72-month car loan a bad idea?
Longer car loans often cause you to fall into debt in the initial years of the loan. Depreciation happens faster than you can pay off the loan because cars depreciate so quickly.
In the first couple of years, you can owe more than the car is worth if you have a 72-month car loan. In addition to more affordable monthly payments, longer car loans also let you save on interest.
What have used car loan interest rates?
Currently, the average interest rate on a used car varies between 4.08 percent and 20.67 percent, according to Experian. A used car usually comes with a higher interest rate than a new one.
What is the minimum credit score for 0% financing on a car?
Typical new car offers with zero percent APR are usually available to credit-score-above 781 borrowers. In contrast, you may qualify if your score is 661 to 780 and you meet other criteria.
How do you get prequalified for an auto loan?
It’s simple to get prequalified for an auto loan online, and you won’t have to leave your house. You can choose one of these lenders and apply for prequalification online through their website. Many lenders will not conduct a hard credit investigation in order to preapprove you.
How do I refinance my car loan?
The steps for applying for a loan refinance are the same as for applying for a new loan. You’ll need information about your vehicle in addition to proof of income and your driver’s licence. Your old auto loan will be repaid using funds from your new loan, and your monthly payments will be subject to the new interest rate and terms.
Can I sell my car with a loan?
It is possible to sell your automobile with an outstanding loan, but you may have to go through some additional formalities. Negative equity on a car implies you’ll either have to pay the difference out of pocket or refinance the balance of the loan with a different type.
The amount you keep when you sell the car, on the other hand, is determined by whether it is worth more than what you owe. If you plan to sell a car with an existing loan, you should contact your lender first, as each lender has its own set of rules.
Should I get an auto loan from the dealership or the bank?
When it comes to getting an auto loan, deciding between a bank and a dealership might be challenging. Dealerships frequently offer better financing conditions than banks for used cars, but this is not always the case. Whatever the case may be, it is critical to seek estimates from various banks or loans online prior to visiting the dealership. Make sure to compare the rates, terms, and any additional costs to those offered by a dealer.
Do I need to make a down payment or provide a trade-in when buying a car?
A down payment is required by many vehicle lenders. Even yet, this isn’t always a terrible thing; paying a down payment lowers your monthly payments, and the higher the down payment, the more you save. If you put down a higher down payment, your interest rate may be cut.
RESOURCE: The Boo MONEY
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