Slow Down for Auto Loans

Shop around to get the best rates and terms on car loans

Save With the Right Car Loan

Buying a car is exciting. But buying a car and getting a car loan are two different things. When it comes to financing a car or any other vehicle, dealerships often lure potential buyers with zero-interest loans and no-money-down financing. Although these might be competitive offers, they often are not available to all buyers.

Shopping around can help you get the right loan with the best terms. First, consider where you will obtain your auto loan, either through a direct lender — such as a bank or credit union — or through the dealership where you’re buying a vehicle. Then, compare rates and terms with a variety of auto lenders and get preapproved from one before you go to the dealership.

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Loan Amount

$5,000 to $100,000

Loan Term

12 to 96 months

Time to Fund

< 1 to 48 hours

How to Plan for Buying a Car

Although it may not be the most exciting part of your car buying experience, it is essential to shop around for an auto loan, because a hasty decision can cost you thousands of dollars over the life of the loan. The following steps can help you with your initial planning.

Set a Budget

Identify how much car you can afford. If you need a car for practical reasons, plan to spend about 10 percent of your monthly income toward your car payment, which includes principal, interest and insurance. If you’re interested in – and can afford – a more luxurious vehicle, 20 percent may be reasonable.

Know Your Car Usage

Identify how often and far you’ll be driving. If you need an affordable, short-term vehicle to cover minimal mileage, leasing might be an attractive option.

Check Your Credit

Your credit score will have the largest effect on your eligibility for lower interest rates and more favorable loan terms. Start working on settling late payments and improving your score as soon as possible.

Call Your Insurance Company

Buying a new or used vehicle can affect your insurance premium. Check with your insurance provider to see if there will be any payment changes.

Get Preapproved

Before going to the car lot, consider getting prequalified or preapproved for an auto loan from a lender. Preapproval provides you with an idea of the loan amount, terms and interest rate you can expect to get with your credit and financial situation. This is useful in knowing your limits and to use when negotiating at the dealership.

Borrow Wisely Tip

car buying

Dealerships offer attractive financing terms, but they are usually applicable only to those with strong credit. It is smart to first compare lenders on your own and get preapproved before going to the dealership.

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Types of Auto Loans

Auto loans are either secured or unsecured:

Secured Auto Loans

Secured auto loans typically use the vehicle being purchased as collateral against the loan, but can use another of the borrower’s assets. The collateral is repossessed if you don’t keep up with the loan payments.

Unsecured Auto Loans

Unsecured auto loans do not require collateral that can be repossessed in case of borrower default. Interest rates are often higher, however. In essence, it is a personal loan, where the money can be deposited in your account even before you select your car.

Rates and Terms

Auto loans take into account the principle amount — the purchase price minus rebates and down payments — the length of the loan and the annual percentage rate, or APR, which is how much you pay each year to borrow the money in terms of the interest rate and associated fees. These costs are totaled and divided into your monthly payments.

The auto loan interest rate structure can be simple or pre-computed.

  • Simple-interest loans. In these loans, interest is calculated based on the total outstanding loan amount. Borrowers can save money by paying more than the monthly payments. With this, you pay off the loan early and reduce the overall balance owed because you’ll pay less in interest.
  • Pre-computed loans. In these loans, lenders calculate the entire balance and interest owed upfront, and divide the total into fixed payments. The borrower may pay off the loan ahead of the agreed schedule, but will still pay the full fixed amount.

Interest rates on auto loans can range from 3 percent to 13 percent. Lenders base their rates on many factors.

  •   Credit. Credit is king when it comes to interest rates. The higher your credit score, the more negotiating power you have in bringing down your loan rate.
  •   Down payment. A higher down payment typically reduces your interest rate. People with strong credit may qualify for a zero-down loan, but interest rates will be steep.
  •   Debt-to-income ratio. This is calculated by dividing your monthly debt payments by monthly income, and represents your ability to repay a loan. A demonstrated ability to manage debt payments improves your loan rates.
  •   Loan term. Longer loan terms have lower monthly payments but carry higher interest rates that could potentially cost more in the long run.
  •   Type of car. Because used cars have a lower value, lenders typically charge higher interest rates over shorter terms to ensure they turn a profit. Compare used car loans before speaking with the dealer.

Bad Credit? Follow this Checklist

  • Check your credit score.
  • Compare auto loans and assess their overall terms.
  • Consider using a trusted cosigner to get better loan rates.
  • Know all the fees associated with your loan.

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How to Refinance an Auto Loan

If you are unhappy with the existing conditions of your auto loan, you may be able to refinance and obtain lower monthly payments or a lower interest rate, even if you have poor credit.

Refinancing your auto loan is particularly useful if your credit has improved since you took the auto loan or the initial loan had a high interest rate. Compare at least two auto loan refinance options to see what rates are available to you and if it makes sense for your financial situation.

Love Your Leased Car? Buy It Out.

Buying out a car you’ve leased can be wise if you like the vehicle and the financials make sense. Similar to refinancing, an auto lease buyout loan is the repackaging of an existing debt. The following steps can help buy out your leased car.

  1. Identify the residual value of the car. The residual value is the buyback price of the vehicle. Typically, you will be charged a purchase option fee on top of the residual value as outlined in the initial contract.
  2. Determine the car’s retail value. Use online car-valuation resources like Kelley Blue Book.
  3. Compare the two values. If the buyback price is lower than the retail value, it makes sense to buy out your lease. It is more common, however, to find the retail value has fallen below the buyback price
  4. Compare auto lease buyout loans. You will need to know the terms and rates of these loans. Have these on hand when negotiating with your current leaseholder to reduce the buyout cost. Get personalized rates from auto lenders.

Getting Out of an Underwater Car Loan

When you owe more money on a vehicle than its retail value, you have negative equity — known as an underwater or upside-down loan. This will affect the rates and terms of your new loan should you trade in the vehicle. If paying off the loan is not possible, consider refinancing or taking out a personal loan to reduce your long-term costs.

Financing Leisure Vehicles

Long-term travel plans or a specialized hobby might put you in the market for a leisure or recreational vehicle. Finding the right loan for your leisure vehicle can save you money.

Recreational Vehicles

Find the right loan to finance an RV and get on the road.


Finance a motorcycle, snowmobile or ATV with a leisure vehicle loan.


Get ready to purchase your dream vessel with the right financing.


Get approved to buy or lease an aircraft and take to the skies.

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