Enter your In 2019, auto loans reached a record high, with people are borrowing more money than ever before. CNBC reports that the average loan amount for people who financed new cars is $32,187, or $20,137 for a used car. Loan demand has not slowed down, but more Americans — especially those with prime and super prime ratings — are financing used cars as a way of bringing down their monthly payment.
Buying used is one way to save money on an auto loan. Another is to perform due diligence and shop around before you even look for vehicles. If you wait until you are at the dealership to get financing, you decrease your bargaining power and may have to settle for less favorable terms.
You could also miss out on some of the best auto loans available in the New Year. here...
Ace Auto Loans
Auto Credit Express has been helping people get financed for the new or used vehicle they need since 1999. If you are at least 18 years of age and employed with a minimum monthly income of $1,500, we can help you get financed regardless of your credit situation.
Smart Refi - Lending Tree |
Life tends to bring unexpected expenses! Take charge of your finances with loans by Lending Tree from $1,000 to $50,000. That's not all! By making on-time payments, your new auto loan will build your credit rating. An auto loan will also add to your credit mix, which could increase your credit score.
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How to Shop for the Best Auto Loan
Understand the basics.
There are a couple of general things to keep in mind as you look for auto loans.
One is the annual percentage rate, or APR. This rate determines the amount of interest you will pay on the loan for its duration. Typically, lenders assign a lower APR to shorter-term loans. Although your monthly payment will be higher, you can save hundreds of dollars in interest if you manage to shave even one point off the APR by choosing a shorter-term loan.
Another way to get a loan with a lower APR is to have excellent, or super prime, credit, defined by a score of 781-850. Rates vary as much as four points from super prime to nonprime (a credit score of 601-660). You should always check your own credit rating before starting any pre-approval or attempting to negotiate with a dealership. Also keep in mind that, as a consumer, you have a right to negotiate the interest rate.
Meanwhile, pay careful attention to any fees or conditions attached to the loan. Make sure the loan doesn't contain a prepayment penalty, or a fee should you decide to pay off the loan in full earlier than the maturation date. It's also worth finding out how much the lender is going to charge you to process the loan. Some lenders offer a flat rate, while others may add points to the loan itself — i.e., increase the interest rate. You should do the math and find out which method costs you more over time.
Decide how much you want to pay.
There are two issues here, what you can afford to pay and what is an ideal amount to spend. Just because you qualify for a big loan doesn't mean it's a good idea to max out your credit to get a $50,000 car.
Here's why. Although they are both considered installment loans, car loans differ from mortgage loans in one important respect: Automobiles are not an investment. Over time, the average home appreciates at a rate slightly higher than inflation. A motor vehicle, on the other hand, loses value the minute you drive it off the lot and continues to depreciate over its short lifetime.
A smart approach is to figure out the maximum monthly payment you can afford for the shortest loan period. Ideally, you should not take out a new car loan for longer than 60 months; 36 months is better, and will yield a lower APR. Signing up for a longer term loan may reduce your monthly payments, but you risk going "underwater" on the loan — i.e., owning a car that is worth less than you owe on it.
The best way to reduce your monthly payments is to purchase a more affordable car in the first place.
Ask your bank or local credit union.
If you are a credit union member, you should call there first and ask if they can pre-approve you for a loan at their current interest rates. Historically, credit unions offer lower rates on auto loans than banks. Some will finance used auto loans and auto loan refinances as well. If you don't use a credit union, the next best thing is to call your local bank.
Since you already have an account and history with this lender, in some cases they will work with you to establish better credit or be more flexible than a big national lender. Make sure to ask for all the variables that can lead to savings, like a lower interest rate if you allow the loan payments to be auto-paid from your account.
Check online lenders.
Online lenders offer an important advantage you won't get at your local bank or credit union — the ability to comparison shop the rates of many lenders and receive competing offers through a single point of contact.
You can't beat online shopping for convenience. Another advantage: Because you are not speaking to a salesman, there is less pressure to accept an offer. You will receive multiple offers and can decide which ones to pursue from the comfort of your own home.
Finalize against the dealer's options.
Pre-approval in hand, you can shop for cars that meet your specific financial requirements. Having a pre-approved auto loan gives you a distinct advantage at the dealership. While Experian points out that using the dealer to finance an auto purchase doesn't necessarily mean a higher interest rate, you may avoid additional fees and have more leverage when it comes to negotiating a lower price.
A final note: Pre-approval is not a hard inquiry even if the lender asked to see financial information. The good news is: It doesn't affect your credit score. The bad news: The exact terms of the loan may vary slightly when you go to secure the auto loan.
The Best New Auto Loans
Consumers Credit Union: Few Membership Requirements
APR: 2.99 - 5.19%**
Terms: 36-84 months
Unlike many credit unions, which have membership requirements, Consumers simply requires customers to pay a $5 fee and keep the same amount in a saving account in order to do business with them. Their auto loan rates are as low as 2.99% APR when you finance a vehicles that is less than three years old.
Capital One: Best Big Nationwide Lender
APR: 3.95 - 11.53%**
Terms: 36-72 months
Their Auto Navigator® tool allows prospective lenders to browse available cars and get pre-approval. Since it is a soft credit inquiry, it doesn't affect your credit score but can allow you to determine how much you can afford. The approval letter is good at 12,000 dealerships nationwide, and auto loan rates start at 3.95% APR.
Ace Auto Loans: Great for Borrowers with Bad Credit
APR: rates vary**
Downpayment may be required.
Ace Auto Loans, a division of AutoCreditExpress.com, specializes in financing auto loans to individuals with sub- or nonprime credit. All you need to do is make at least $1500-$2,000 a month, be a U.S. or Canadian resident of at least 18 years of age, and have a projected debt to income of less than 50% to qualify.
Lightstream: Optimized for Mobile = Unparalleled Convenience
APR: 3.99 - 9.19%**
Terms: 24-84 months
A division of Sun Trust bank, Lightstream offers rates as low as 3.99% APR on fixed rate loans with AutoPay. They can fund your loan as early as the same day you apply, and it's easy to apply for loans through any device, including your mobile phone.
Carvana: Skip the Middleman
APR: varies**
Terms: varies
Carvana cuts out the middleman, allowing customers to pre-qualify, finance, and select a vehicle all through the same site. They work with prospective buyers who have a credit score as low as 500 — though such buyers will be subjected to a much higher APR — and give instant approval on 15,000 cars. Although they don't disclose their rates, you can go into their "build-a-deal" calculator and find the approximate values.
OpenRoad Lending: Streamlined Auto Loan Refis
APR: 2.49 - 24.9%**
Terms: 36-84 months
One thing some car owners don't realize is you can refinance a car loan to a lower rate, just like you can refinance a home loan. This option can save you $100 dollars or more on your monthly payment. OpenRoad specializes in streamlining the auto loan refi process. You must have prime or super prime credit to qualify for the lowest rates, and there are certain stipulations for your vehicle as well: It must have under 140,000 miles and be less than 10 years old.
LendingTree: Smart Refi for Auto Loans
APR: starts as low as 2.99% on refinances**
Terms: 36-60 months
One of the pioneers in comparison online loan shopping, LendingTree offers people who want to refinance their auto loan a simple, convenient way to check current rates in the community where they live. You can also check your credit score for free right on their site and use their auto refinance calculator to see how much you could potentially save through smart refinancing.
**Disclaimer: Rates are subject to change without notice and may fluctuate multiple times throughout the day. Posted rates do not constitute an offer to lend. All loans are subject to credit approval.
Valerie Fulton is a freelance writer specializing in business, finance, entrepreneurship, and real estate.
