Finding a reliable car to fit your needs is half the process. Securing great terms is the other essential step if you plan to finance the vehicle with an auto loan. A competitive auto loan rate can make the car a great deal. You’ll want to consider interest rates, fees, and credit scores to help find the best current deals. Fortunately, you have many options to choose from. Read on to start selecting the best place to get a car loan for your needs.
4 some of the best places to get a car loan
If you need a car loan, you can consider options from dealer financing to local or online banks. You can also trade in a car with a loan. Here are some of the best loan options to consider.
1. Online lenders
Online lenders have become a popular option for car loans in recent years. Online lenders make shopping and comparing their best available rates easy.
Some online lenders allow you to get prequalified for an auto loan to compare personalized rates. Likewise, there are comparison sites that allow you to compare many online lenders at once so you can choose the best loan for your needs.
Online lenders seem to be more flexible about minimum credit scores, potentially opening loan opportunities to a wider range of borrowers. Some online lenders will offer auto loans to borrowers with low or no credit history.
Be warned that these usually come with high interest rates. Online lenders generally offer buyers higher interest rates than banks or credit unions, but the ease of comparison makes them an attractive option to start shopping.
If you’re looking for a trusted online lender for your car loan, MoneyLion can help! MoneyLion helps you find personal loan offers based on your background and the info you provide. You can get matched with offers for up to $50,000 from top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.
2. Local banks
Getting preapproved at one or more local banks can be a good idea if you plan to purchase a car in the next few months. Doing so allows you to compare rates and come in prepared to counter or negotiate on financing a dealer offers later.
Banks usually offer competitive rates for borrowers with good to excellent credit, but even those with lower scores can investigate the options below.
Keep in mind that some banks will only finance new cars. Others have mileage or age limits on vehicles to qualify for financing. For that reason, if you plan to purchase an older used vehicle, other options on this list might be a better fit.
The advantage of bank financing is the simplicity of securing the loan, especially if you choose a bank you already use for other financial activities. The disadvantages are the additional criteria or limitations to securing a loan.
3. Credit unions
A credit union is a member-owned organization that offers members higher savings rates, lower fees, and loan interest rates. If you’re a credit union member, you could secure lower interest rates than those offered through banks or online lenders.
The National Credit Union Administration reported that the average credit union interest rate on a 48-month new car loan was 5.25% in March 2023, compared to 5.98% from a bank. Credit unions may also be more flexible than banks in borrower credit score requirements or minimum credit scores.
The advantages of credit union auto loans are the possibility of lower interest rates and a less stringent application process. The disadvantage is that, in most cases, you’ll need to be a credit union member.
4. Dealership financing
Many borrowers choose car dealership financing to work with a single company and simplify the loan application process and more easily secure financing. You can arrange financing on the spot with dealership financing, making it easier to secure a loan and drive off with a new car. Here are the three main types to consider.
Dealer-arranged financing means that the dealer works as a broker to connect you with one of its lending partners. Many people choose dealer-arranged financing for the convenience. The dealer simplifies the borrowing process and helps you find a loan for the vehicle you plan to purchase.
However, because you’re not doing the research yourself, you risk higher interest rates or fees unless you come in well-prepared. Dealer-arranged financing often comes with higher fees as the dealer is compensated for its role in matching you with a lender.
Note also that dealer-arranged financing is sometimes bought or sold between lenders, so you could pay a different lender than you originally expected.
The major advantage of dealer-arranged financing is convenience. The disadvantages are higher potential fees and interest rates.
Buy-here, pay-here financing
Also known as in-house financing, buy-here, pay-here financing means that the auto dealer also acts as the lender. This type of financing caters to a range of buyers and allows borrowers with low or no credit scores to secure an auto loan.
With buy-here, pay-here financing, the dealership will determine your loan eligibility and maximum loan amount. You may choose a car from the dealership for up to the maximum and then finalize the loan. Monthly payments are usually made directly to the dealership. In this case, the dealership may place a device in your new vehicle to locate or disable your car if you miss monthly payments.
The advantage of this type of in-house solution is the simplicity of financing all in one place. This is a reasonable financing solution if you have a poor credit score. However, a disadvantage can be high interest and fees. Be sure to read the contract carefully and ask questions about anything you don’t understand to avoid additional charges or fees. You can also find other options for auto loans for bad credit here.
Captive finance companies
Captive finance companies are major auto dealerships’ in-house financing divisions. You can get these types of loans from Toyota, GM, Ford, and other major auto manufacturers. Captive finance companies usually finance new vehicles or manufacturer-backed certified pre-owned cars, so this isn’t an option if you plan to buy a used older vehicle.
Sometimes, captive finance companies offer promotional periods with 0% APR to attract new clients, although this is generally only available to those with good to excellent credit scores.
In some cases, dealers will share your loan application with the captive finance company and other lenders simultaneously. If you plan to buy a new or near-new car and you’ve settled on a make and model, you can compare rates online or with local banks and credit unions before visiting the dealership. Then, you can compare their best available rates and even negotiate.
The advantages of captive finance companies come down to convenience. However, if you’re buying a newer car and know the make and model, you could save substantially by researching the best available offers before entering the dealership.
The disadvantages of captive finance companies are that they’re unavailable on older vehicles, and borrowers with low credit scores usually won’t qualify for the best promotional offers.
Factors to consider prior to selecting a car financing option
When selecting car financing companies, consider the total value offered based on your desired price range, credit score, and financial needs. Here’s what to consider.
1. Comparison shopping
Auto lenders can charge any interest rate they choose. As a consumer, it’s your responsibility to research and compare the best available options. Carefully research online or with local banks and credit unions before making a decision.
Consider getting at least three quotes, but you could easily get 10 or more through online comparisons. Online comparison tools can help you choose which offer is the best for you. They offer the convenience of seeing many options from your phone, tablet, or computer.
Once you have multiple quotes, you can carefully consider loan options based on down payment, interest rates, loan terms, and fees based on your needs and financial situation.
2. Credit score requirements
Lenders want to understand the risk they’re taking in making a loan. Your credit score indicates to lenders the likelihood that you’ll default on the loan. The higher the credit score, the less likely a borrower will default.
That’s why a credit score of 705 or above is generally considered a good credit score, making it easier to get a loan. However, each lender has its own credit score criteria. Many lenders look for credit scores above 680 or 660. Even if you’ve got a lower credit score, specialized solutions are available to help you get a car loan.
To help improve your credit score before applying for a car loan, the first step is to check your credit score and dispute inaccurate information. You are entitled to a free credit report from all three credit bureaus at annualcreditreport.com.
Once you’ve verified the correct information on the credit report, steps to help improve your credit score are:
- Pay all credit accounts and bills on time every month. On-time payments make up 35% of your credit score.
- Work to pay off debt and reduce your debt-to-income ratio below 30%.
- Consider using a rent reporting company to boost your credit score with on-time rent and utility payments.
- Consider becoming an authorized user on an account of someone with a good credit score.
Still need to pay off debt? You can also learn how to get a car loan with a high debt-to-income ratio.
PRO TIP! A good credit score can lead to lower interest rates and increased borrowing power on loans and credit cards. MoneyLion offers a free and convenient way to find offers from our trusted partners to help you improve your credit.
Buying Your New Car
Securing financing is the first step to purchasing a car that meets your family’s practical and financial needs. Regardless of whether your new car is a Maserati or a 20-year-old SUV, you can compare interest rates or percentage rates, look at total fees, and compare terms to find the most favorable opportunities. With online search tools, the power is in your hands! Already have a loan? Learn how to get out of a car loan here.
Is it better to get a car loan from a dealership or a bank?
If you’ve selected a car and the dealership offers competitive financing, this is often the simplest solution. A dealership may offer better interest rates or lower fees than a bank. However, you’ll be limited by that dealer’s selection. Before entering the dealership, compare the best available rates online or with your bank so you’re sure you’re getting the best financing offer.
How can I find out which bank offers the lowest interest rates for car loans?
You can look at online bank rates, compare online lenders, or get pre-approved at local banks to compare the most favorable terms and available rates. Be mindful of fees.
How long does it typically take to get approved for a car loan?
Car loan approval usually happens within one day to one week. In addition, some lenders will give borrowers instant approval.