When you’re ready to buy a new car, you typically have two options: pay in cash or take out a car loan. While we’d all like to be able to cover this purchase without a loan, it’s just not a reality for most people.
If you’re looking for an auto loan in the coming months, there are countless options available to choose from. You can find online lenders, traditional lenders, and even lenders that specialize in bad credit borrowers.
To get started, have a look at our picks for the top auto loans of 2023. You can find some of the best auto loan rates and terms from these lenders.
Best Auto Loans for Bad Credit
Don’t let a poor or fair credit score stop you from looking for an auto loan. Here are some of the best auto loan companies that are willing to work with people with less than perfect credit.
Loan TermUp to 72 months
Minimum Credit Score500
With Auto Credit Express, you can qualify with poor credit and face fewer restrictions on the type of car you can finance. For example, there are no age or mileage requirements, so you can get a car as old as you want.
Loan Term12 to 72 months
APR3.90 – 27.90%
Minimum Credit Score450
Carvana’s unique value proposition is that you can get a car loan, choose a vehicle, and buy a car all in one place. The company has a large selection of used cars you can choose from, and there is no minimum credit score to apply.
Loan TermUp to 72 months
Minimum Credit Scorenone
CarsDirect accepts borrowers of all credit types, so it’s an easy one-stop shop for anyone looking for an auto loan. They’ve been in the business for nearly 20 years and have helped 5 million customers in that time.
Best Auto Loans for Good Credit
If you have good to excellent credit scores, it will be much easier to find the best auto loan rates. Start with these options.
Loan TermUp to 84 months
APR3.49 – 17.54%
Minimum Credit Score620
Consumers Credit Union is based in Illinois, but open to members in all 50 states and anyone can become a member. There’s a $5 fee to join.
Loan Term36 – 84 months
APR2.29 – 17.99%
Minimum Credit Scoren/a
Pentagon Federal Credit Union, or PenFed, is a credit union for military members and their families that offers some of the best auto loan rates. However, anyone can join by making a donation to an approved charity.
Loan Term24 – 84 months
APRAs low as 2.99%
Minimum Credit Score500
Capital One Auto Finance accepts borrowers with less than excellent credit, but there are some standards your car must meet. For example, mileage cannot exceed 120,000, and it must be no older than a 2009 model.
Loan Term48 – 72 months
APRAs low as 3.29%
Minimum Credit Scoren/a
Bank of America is also a large bank advertising low rates. Of course, your specific rate depends on your credit history, where you live, and other factors, but it’s a good place to begin.
How to Pick an Auto Lender
Even if you’re in a rush to purchase a car, don’t automatically accept the first loan offer you receive. Instead, take some time to sit down and thoughtfully weigh all of your options.
After all, this is a decision that will impact your finances for the next several years. So, there’s no need to go so fast that you end up missing out on a great auto loan. Here are a few tips to get you started with the loan process.
Set a Timeframe to Search
Whether your last car broke down yesterday or you’re simply looking for an upgrade in the upcoming months, give yourself a set timeframe to get a new car loan.
Depending on how a lender’s decision process works, your prequalification or preapproval may require a hard inquiry on your credit report.
When comparison shopping for the same type of loan over the course of a month or so, each inquiry will likely be lumped together as one. This won’t have much of an impact on your credit history. However, if it’s spread out too long, your credit score could take a big hit. Each inquiry lowers your credit score around five points.
Find the Best Auto Loan Rates
Another reason you want to give yourself a timeline is so that you can find the best auto loan rates. For example, if you get an estimate on your interest rate in the spring but wait until the fall to make a purchase, you may be in for an ugly surprise.
Interest rates for auto loans are on the rise. There’s no way to predict their exact trajectory, but you likely won’t qualify for the same interest rate if you wait too long.
That means you’ll either have to pay a higher monthly payment for the same car, or purchase a less expensive vehicle just to keep your payment at the original price.
Select Your Loan Type
When searching for a lender, you can narrow them down by the type of loan you need. After reading the reviews above, you can tell that some auto lenders only offer car loans for new and used vehicles from dealers.
If you want to finance a vehicle from a car dealer or private party, make sure you’re comparing multiple lenders that actually offer that service.
The same holds true for auto loan refinancing and lease buyout loans. If a lender doesn’t offer the type of loan you’re looking for, there’s no need to get a quote from them, despite their low interest rates.
Compare Auto Loan Rates and Fees
No two car loan lenders are likely to offer you the same loan terms. Therefore, you need to compare interest rates, APRs, and which lenders impose any type of fee, such as an origination fee.
Furthermore, consider the length of the loan term. For example, one loan might offer a lower interest rate but a loan term two years longer than another loan.
If you can afford the monthly payments on both, which one will save you the most money over time? Does the auto lender charge any other fees, such as a check processing fee? How are origination fees paid for? These are all questions you need to ask to avoid any unpleasant surprises once the loan is fully processed.
Check Your Local Credit Union
Credit unions have a reputation for offering competitive car loan rates for their members. Look around and see if there is a local credit union that you could qualify for membership.
This simple extra step could land you a better interest rate. The only downside is that it does take a bit more effort since you have to become a member. Additionally, many credit unions are implementing better technology into their online application process, some smaller institutions may still use paper applications.
Consider the Application Decision Timeline
Finally, remember to consider how long the application decision takes and how long it takes to get your funds in the bank.
Even if you’re not buying a car right away, this information is vital for you to plan when you can actually get the keys to your new vehicle.
Most online lenders boast a quick application process, so delve a little deeper to get the actual details. Even if you get a credit decision within moments, find out how long the underwriting process takes.
If the lender boasts same-day or next-day funding, figure out what you need to do on your end to make that happen. In most cases, you’re responsible for providing income verification documents and signing a loan agreement before the lender can release any funds.
Frequently Asked Questions
What are car loans, and how do they work?
An auto loan is a product which can help you finance the purchase of a vehicle without paying the full cost upfront. Most auto loans are secured, meaning the vehicle is used as collateral if you fail to meet the repayment terms. These loans also typically come with a fixed interest rate, and most are paid back over the course of 24 to 84 months.
Auto loans are offered by all kinds of financial institutions, including banks, credit unions and online lenders. Dealerships and manufacturer’s also offer financing options for their customers. You can choose between different types of auto loans, each with different interest rates depending on the loan type.
Of course, your credit score, credit history, loan amount and repayment terms will also directly influence the available rates.
What are the different types of auto loan?
Secured auto loan: These are the most common type of auto loan available, using the vehicle as collateral. This means the lender can repossess the car if you fail to make the payments. If your credit score is good or better, you can find competitive rates with a secured loan.
Unsecured auto loan: While unsecured auto loans are less common, it is possible to find them. However, due to the lack of collateral, unsecured auto loans have significantly higher interest rates than secured loans.
New car loan: Most dealerships will offer loans and financing options for the purchase of new cars. However, you can also get a new car loan from a bank or online lender. Naturally, loan amounts and payments can get expensive when purchasing new.
Used car loan: You can also get a loan for the purchase of a used car. You can get these loans just as easily as new car loans, but keep in mind that most loans will have limits regarding mileage and age.
Auto refinance: Refinance loans are another type of secured loan, involving taking out a new loan to help you pay off the balance of your original loan. Refinancing can be beneficial if there are better interest rates available to you compared to your original loan. Additionally, you may be able to rework your terms to end up with a lower monthly payment.
What’s the difference between an auto loan and a personal loan?
Auto loans and personal loans can both be used to purchase a vehicle, but it’s imperative to know the differences.
Auto loans are typically much easier to qualify for compared to personal loans, especially for those with low or poor credit scores. This is because most auto loans are secured, which provides security for the lender. For the same reason, auto loans also tend to come with lower interest rates in comparison to personal loans.
In most cases, when financing a vehicle, you’ll be much better off with an auto loan rather than a personal loan.
How do you get a car loan?
In general, the steps are the same regardless of whether you finance your car through a bank, credit union, or online lender. Let’s take a look.
- Check your credit report and take any steps you can to improve your credit score in the short term. Your credit score is the primary factor used to determine the interest rate you’ll receive, so the better your score is, the lower your rate will be.
- Take some time to shop around with different lenders, including banks, credit unions and online lenders. You’ll find the best auto loans by comparing rates, terms and other factors.
- Prequalify with several lenders, where possible, to see which offer is the best. Look for lenders which allow you to prequalify with just a soft credit check on your credit score. You can easily prequalify with many online lenders who don’t pull a hard inquiry on your credit.
- Decide on your vehicle and make sure to compare the dealer’s financing offer to the preapproval offers you’ve got. This is where prequalifying comes in because you can use those quotes to negotiate a better deal among the potential lenders you’ve found.
- Finalize the offer with your lender, gathering the necessary documents and filling out paperwork to complete the loan signing. Don’t hesitate to double-check that the loan you’re signing for is what you agreed to.
How do lenders determine your auto loan rate?
Auto loan rates are primarily determined by looking at your credit score. However, there are also many other potential factors that lenders consider, meaning you’ll find different rates as you shop around. Here’s the full picture:
- Credit score: As mentioned, this is the single most important factor in determining the interest rate on any loan you apply for. Knowing your credit score, and understanding your credit report, are both key pieces when it comes to looking for an auto loan.
- Credit report: Lenders will also review your credit report, which details exactly how your credit score has been calculated. Credit scores are based on things like payment history, outstanding debt and more. The contents of your credit report will influence the exact rates you’re offered.
- Loan term: The loan term is the period of time in which you’ll make the repayments. Typically, the longer the loan term, the higher the interest will be. A higher monthly payment can open the door to better rates if you can afford it.
- Income: To qualify for the most competitive rates available you may need to meet minimum income requirements. Most lenders will want to see proof of income to ensure that the loan amount you’re seeking can be responsibly repaid.
- Down payment: A 10% to 20% down payment is typically required for an auto loan. This is especially true if the total value of the car is close to matching the cost of the loan. If you can provide a good down payment that will also help to reduce the interest rate.
In addition to these factors, you can also look to negotiate the rates available to you once you’ve got some quotes from various lenders. Prequalifying for a loan is a great way to get a clear picture of the market so that you can negotiate confidently.
You might also benefit from things like autopay. If you set up automatic payments from your checking account, lenders may offer a discount. In some cases, credit unions will give you a discount if you pay the loan with an account there. Always ask lenders for ways to get a better rate because they might have something you haven’t considered.
What credit score do I need to get 0% APR financing on a car loan?
You’ll need an excellent credit score to qualify for 0% APR financing. This rate is available for prime and super prime borrowers with credit scores of 740 and above.
If you’re just below this threshold it might be worth taking some time to improve your credit before you make a move on a car loan.
What is the best time of year to buy a car?
Usually, the best time to buy a car is towards the end of the year. As dealerships strive to meet their sales quotas, the last couple of months of the year are more likely to bring deals and discounts.
The biggest retail holidays also fall in this period of the year, so if you’re looking for a deal on a new or used car then try to take advantage of holiday sales.
Can I get an auto loan with bad credit?
Yes, it is possible to get an auto loan even with bad or fair credit. However, you’ll probably have to spend more time shopping around to find different lenders who offer bad credit loans. If you’ve got bad credit, online lenders who market to fair credit borrowers and credit unions are more likely to lend to you than a bank.
Keep in mind that a lot of predatory and unreliable lenders target fair credit borrowers. Ensure you do your research on any potential lender, and look out for any red flags before you make a commitment with any lender.
How do I refinance my car loan?
Refinancing your car loan involves taking the same steps you took to get your original loan. Begin by checking your credit score, gathering financial documents and then comparing lenders.
Not all lenders will offer refinancing options. So, getting a better interest rate and repayment terms may take some time.
Can I sell my car with a loan?
It is possible to sell a financed vehicle, but it usually requires a bit more work depending on your situation. Selling a car can be difficult at the best of times, but selling a car with a loan on it can be a bigger challenge. You need to know whether you’ve got negative equity on your vehicle, i.e., if the car is worth less than what you still have to pay back on the loan.
You can look to sell your financed car either to a private buyer, an online retailer or a dealership. However, before you assess your options there, you’ll need to gather two important pieces of information.
First, you’ll want to know what the exact remaining balance is on the loan, and what it will cost to own the car outright. To find this out you can ask the lender for a statement detailing the payoff amount.
Once you’ve got that you’ll want to get a quote for the fair market price of your vehicle. This will help you understand whether you’ve got negative equity in the car so you can determine how best to sell it.
How long are car loans?
Typical loan terms range from 24 to 72 months, and the average tends to be close to 70 months, especially in recent years. Keep in mind that the longer the term, the higher your interest rate will be. It can be wise to research the average rates that go along with your ideal term. Lenders may not always provide you with a suitable discount if you’re happy to go with a shorter than average term right off the bat.
If you can afford to take on a shorter term for your car loan, make sure you benefit from that with a more competitive interest rate.
How do you get prequalified for an auto loan?
Getting prequalified for a loan has never been easier due to the quality of lenders online today. You can research appropriate lenders online and take the steps for prequalification from the comfort of your own home. Usually, all it takes is a few minutes to provide some personal information.
What is a good car loan rate?
According to Experian, for the second quarter of 2022 the average rate for a new car is 4.33%, while the average for a used car is 8.62%. A good car loan rate for you will ultimately depend on your credit score and credit history. Keep in mind that interest rates have increased significantly throughout 2022 as the Fed attempts to bring inflation to a halt.
If you’ve got excellent credit, you should be able to find a rate well below the average. Remember that no matter your credit score, it is always worthwhile to shop around and compare rates.
Who has the best auto loan rates?
Auto loan interest rates are constantly changing. That’s why we recommend submitting an application to an auto loan marketplace to get offers from multiple lenders. As of right now, PenFed Credit Union and Consumers Credit Union have the best published interest rates.
What is a good interest rate on a 72-month car loan?
The average interest rate for a 72-month car loan is about 4%, so anything lower than that is a good interest rate. Auto loans with loan terms under 60 months have lower interest rates for new cars.
Is it better to get a car loan from a dealer or a bank?
You will generally get a better interest rate on auto loans from a bank or credit union than you will at a car dealership. It’s also wise to have financing established before you start car shopping at a dealership.
What credit score is needed to buy a car?
For the best auto loan rates, you will generally need a credit score of at least 660. But, some of the auto lenders we’ve listed above only require a 500 credit score.
Having a higher credit score means lower costs. In fact, having a credit score in the 700s will most likely save you thousands of dollars on a car loan compared to a credit score in the 500s.
Which bank has the easiest auto loan approval?
If you have a poor credit score, Auto Credit Express is the best online marketplace to get approved at. car.Loan is also another great option, and you can qualify for preapproval in 3 minutes or less.