Consider these lenders when you finance your next ride.
To narrow down our choices, we compared nearly 100 lenders based on the type of car loans offered, the average interest rates and the total amount you’re able to borrow. These seven options are available to a range of borrowers, even if you have bad credit. And most importantly, they all allow you to apply for preapproval before you start shopping for your next car.
LightStream is an online lender backed by Truist Bank. Its interest rates are competitive — frequently some of the lowest out there. And unlike most lenders, offers same-day funding on car loans. You'll need good to excellent credit to qualify, and there's no preapproval process, which means applying with LightStream will result in a hard pull of your credit.
With lenders offering interest rates as low as 0.99%, LendingTree is a solid way to compare loans. Instead of offering loans directly, you'll be matched with lenders that suit your needs — helping you narrow down your options. But because it sends your information to multiple lenders, you may receive marketing materials even after you get a loan.
Ally Clearlane — formerly just Clearlane — offers competitive interest rates on refinancing. This is a great choice if you've improved your credit or want to change up the terms of your current loan. But besides its lease buyout option, it doesn't offer other types of financing, including new or used car loans. You'll also need to rely on its customer service for the information it doesn't list on its website.
Pros
Low starting APR of 3.74%
Coapplicants accepted
Lease buyouts also available
Cons
Limited information available online
High minimum monthly income requirement of $2,000+
While you will have to open an account with PenFed — and wait at least 90 days to get preapproval — it's one of the least expensive options out there for new and used cars. But if you're looking for a credit union that offers in-person services, it may not be the best choice: It only has branches in a handful of states and US territories.
Bank of America is one of the top banks out there with low starting interest rates and a wide selection of loan options. While you're generally stuck buying from its network of dealerships, Bank of America will finance private-party loans. Just be sure any vehicle you're looking at meets its long list of minimum requirements.
Pros
Extremely low starting APR
Multiple car loan options
Large maximum loan amount of $100,000
Cons
Limited dealership network
Must have BofA bank account to apply for private-party purchase
M&T Bank is one of the few banks that offers financing for RVs, boats, motorcycles and other leisure vehicles. It offers clear rates and terms, although the fees you might pay aren't easily found. And while you'll find a wide variety of vehicles covered, M&T Bank has a limited reach — it only has branches in eight states and Washington, DC.
Pros
Low starting rates for boat and RV loans
APR discount for current customers
Long loan terms available
Cons
Limited state availability
Not all fees are transparent
Loan amount
Starting from $2,000
APR
7.49% to 15.76%
Loan term
Up to 7 years
Loan amount
Starting from $2,000
APR
7.49% to 15.76%
How can I get a good rate on a car loan?
Here are a few pointers to nab a good deal on your next car loan:
Consider a newer vehicle. New car loans come with lower interest rates because the lender is taking on less of a risk. Most new car loans allow you to secure a vehicle that’s less than two years old, although some may only be for cars that haven’t been previously owned.
Apply within 45 days. When you apply for multiple car loans, keep your applications within a short period — typically no more than 45 days. Most credit bureaus will count it as one line on your credit report, saving you from lowering your score every time you fill out an application.
Get preapproved. The easiest way to avoid an inquiry is to apply for preapproval. Many lenders are able to quote you an estimated rate without doing a hard credit check.
Note all of your assets in your application. Some lenders offer lower interest rates if you have a large sum of money to fall back on. Even if you’re applying for a secured car loan, listing other assets may help you get a better rate.
Borrow less than you’re buying the car for. Having a down payment or trade-in can make you eligible for a lower rate if a lender sees you don’t need to borrow 100% of the purchase price of the vehicle.
Compare your options before you apply. Comparing offers from different car loan providers can help you find the lowest rate available to you. If you don’t want to do this yourself, you can consider using a car finance broker or online connection service.
How is my interest rate determined?
Car loans can come with rates as low as 2%, but the rate you qualify for depends on several factors, including:
Credit score. The best rates go to borrowers with the best credit score.
Income. The higher your income, the more likely you are to get a good deal.
Debt-to-income ratio. Having regular monthly debt expenses worth 20% or less than your income can also get you a better deal.
Car type. New cars typically come with lower rates than used cars.
Loan term. Often longer loan terms come with higher rates — especially at credit unions.
Compare lenders that specifically assist people with poor credit.
Should I use manufacturer financing?
Manufacturer financing can be a good option if you have excellent credit and a strong credit history. This is because many manufacturers offer special deals on new and certified preowned (CPO) cars. These can include cash back, 0% financing and other discounts — all of which can drastically lower your monthly repayment.
But these deals are difficult for most borrowers to qualify for. If you want to get the best rate, take the time to see what other lenders will offer. Then you can compare it to the manufacturer — or dealership — financing option to ensure you’re picking the right loan.
Will I get a better deal with a larger down payment?
In general, yes. Lenders may be more willing to offer favorable terms if you have money saved up to use as a down payment. A larger down payment also means you have to borrow less, which reduces your monthly payment and how much you’ll pay in interest.
For instance, say you’re looking to borrow $15,000 for a new vehicle. The lender you’ve chosen to go with offered you a 60-month term with a 7.45% APR.
By calculating your monthly payments with different down payment amounts, you can see how much money you’ll save each month and overall:
Down payment
Monthly payment
Interest paid
0% ($0)
$300.21
$3,012.78
10% ($1,500)
$270.19
$2,711.50
20% ($3,000)
$240.17
$2,410.22
In this example, by having $3,000 saved up, you end up spending about $600 less on your loan and reduce your monthly payments by $60.
A sizable down payment can make the best loan even better by potentially saving you hundreds of dollars in interest over the life of your loan.
5 reasons to avoid long-term car loans
While a 72-month or 84-month car loan can be convenient to lower your monthly payment, it typically isn’t the most financially sound choice. You’ll pay more in interest over the life of your loan — and you may actually receive a higher interest rate than you would on a shorter term.
1. You’ll pay more interest
Long-term car loans are expensive. Despite the low monthly payment, you’ll end up paying much more overall. For an average new car, that means an interest rate of 4.31% on a loan of $35,000. Here’s how it breaks down.
Loan term
Total interest
Total cost
24 months
$1,592.95
$36,592.95
36 months
$2,374.23
$37,374.23
48 months
$3,166.31
$38,166.31
60 months
$3,969.17
$38,969.17
72 months
$4,782.80
$39,782.80
84 months
$5,607.17
$40,607.17
While you may be able to find a special deal if you have excellent credit, long-term auto loans tend to have higher interest rates. You can calculate your monthly payment and total interest to see how much more a long-term loan will cost you.
2. It’s easier to go upside down on your loan
Upside down, underwater and negative equity all mean the same thing: You owe more on your car than it’s worth. This is a high-risk, low-reward scenario. Even if you keep your car the full six or seven years of your loan term, its value will have significantly depreciated.
When you go to sell your car or trade it in at the dealership, you may not recoup your losses. And if you choose to sell before your loan term is finished, it will cost you more — wrapping your previous loan into a new car loan will lead to high debt.
3. Your finances might change
Low monthly payments seem like a good future bet. But realistically, higher monthly payments and a shorter loan term save you money. Instead of paying an extra $4,000 in interest for a longer loan term, you could put that money into savings.
In the worst-case scenario, having a fully paid-off car will be more beneficial than a lower monthly payment.
4. Newer cars lose value faster
Depreciation takes its toll on new and used cars. You’ll lose money as a car ages and its value decreases. On top of this, your warranty will expire a year or two before you finish making payments. This puts you on the hook for expensive repairs which could sink you further into the red.
If you’re thinking of getting a long-term car loan on a new car or late model year used car to reduce payments, keep this in mind. The money you lose to depreciation can quickly put you upside down on your loan.
5. Older cars have less resale value
In addition to depreciation, older cars have less resale value. Even if your car was originally worth $35,000, it won’t be by the end of six or seven years. You could potentially make up some of what you paid in interest, but you’d stand a better chance of breaking even with a shorter loan term.
So what’s an ideal loan term?
The ideal loan term depends on your financial situation — but try to choose a loan with the highest monthly payment your budget can afford. A shorter loan term of four years or less means you won’t pay as much in interest. So while your monthly payments will be higher, you’ll save money in the long run.
The truth? There’s no single best car loan out there. Not everyone looking for a car loan is buying the same car, earns the same income or is in the same financial situation. It’s up to you to compare your car loan options and find the lender that best fits your needs.
Yes. Some lenders are able to work with borrowers who have a low income. However, the amount you’re approved for will vary depending on how much the lender thinks you have the ability to pay back.
Can I get a car loan if I have bad credit?
It depends on how damaged your score is, but there are lenders that offer bad credit car loans.
Do I need a down payment for a car loan?
Unless you have an impeccable credit history, most lenders require a down payment.
Kellye Guinan is a freelance editor and writer, specializing in consumer lending. Her writing and analysis has been featured on Bankrate, MSN and MediaFeed. She holds degrees in anthropology and German language and literature from Middle Tennessee State University.
SoFi and Capital One are both good picks for different reasons. SoFi is best for everyday banking, but Capital One has more account options and branches.
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