Ultimately, the best place to get a car loan will depend on your situation.
Your options to get financing include:
At the dealership
From a traditional bank or credit union
Through an online lender
Typically, to get your best possible loan, you’ll want to shop around a little and get pre-approved before you go in to buy a vehicle.
Dealership financing is likely to include some pretty substantial markups, so don’t be afraid to negotiate not just on the terms and car price but on the APR and fees attached to your loan. Getting pre-approved can make that negotiation easier, even if you know you’d prefer dealership financing.
Millions of Americans with dealership financing are eligible for lower rates and better terms than the ones they’re currently locked into. Lowering your payment through a refinance is quick and easy.
Find out how much you could be saving.
Regardless of where you decide to apply, it’s important to make sure your credit is in good shape and that your credit score is as high as possible. Shopping around and comparing rates is key when determining the best lender for your situation.
If you are looking for a car loan, there’s good news and there’s bad news: the good news is that there are a lot of places that can help you secure a loan. The bad news is that there are a lot of places that can help you secure a loan.
When there are so many options, it’s hard to know what the best choice will be. In this guide, you’ll learn about the options you have when looking for a car loan, steps you can take to get your best rate, and tips to help you decide which lending option is right for you.
In this guide, we’ll look at:
Where vehicle loans are offered (and the pros and cons of each option)
How to get the best rate on your auto loan
There are four key kinds of lenders for auto loans:
Car dealerships
Banks
Credit Unions
Online lenders
The advantages: Convenience
The disadvantages: Higher rates, higher pressure
The bottom line: Dealer financing is not the best place to get a car loan, but if you need a new car and are having trouble getting approved elsewhere it may be your best bet.
One of the easiest ways to get a car loan is to simply go to the dealership and arrange for financing when you purchase your new car. Dealers make it easy for you to do everything in-house. They have relationships with certain lenders and can approve you on the spot for financing. This can be good or bad depending on your situation. The biggest advantage to dealer financing is that it is convenient. You don’t need to make any effort other than showing up at the dealership with the necessary paperwork.
But with convenience comes the one major disadvantage: you cannot shop around and compare. Taking the time to research and compare rates and lenders can help ensure that you get the best rate, the best terms, and overall best loan available to you. Dealer financing is generally more expensive because the dealer is tacking on additional fees or additional interest on top of the lender’s loan. You are paying for a middle man in addition to paying the lender.
Some dealerships have in-house financing companies, which are referred to as captive finance companies. These companies are lending institutions in and of themselves. Captive financing may offer more discounts since they have control of the underwriting process, but they may also inflate prices and can be much more aggressive when trying to upsell you.
The advantages: Competitive rates, many locations, great customer service
The disadvantages: Less flexibility, not great for those with poor credit
The bottom line: A traditional bank is a great place to get a car loan if you have good credit, but if your credit is less than stellar you may have a hard time securing a loan.
Going to a traditional bank is a great option for many people looking to secure a car loan.
Banks can usually offer the lowest rates and the best terms. However, these rates are reserved for those with the best credit scores and credit history. You may find limitations and restrictions when using a traditional bank—for instance, many traditional banks will not finance a car that is over a certain age or mileage.
The advantages: Competitive rates, great customer service, more flexible than traditional banks
The disadvantages: May not meet membership requirements, do not have a lot of locations
The bottom line: A credit union is a great financing option for many people. They often have the lowest rates and great customer service, but you may need to shop around and determine your eligibility.
Credit unions operate in a similar way as banks do, but they are not for-profit and instead distribute their profits to their members. They tend to serve specific locations or communities,as opposed to a traditional bank that might have branches throughout the country or the world.
Credit unions may have membership requirements, but they offer many benefits, often offering better interest rates than traditional banks. They can also be more flexible for those who may not meet the standards of a traditional bank.
The advantages: Lots of options to compare, competitive rates
The disadvantages: Requires more research and vetting, which makes this option much more time consuming
The bottom line: If you have the time and patience to use an online lender, you may find the most competitive rates and best terms for your car loan.
Online lenders have become an increasingly popular option for car loans in the past decade, and it’s easy to see why. When looking for an online lender, you can easily shop around and compare interest rates and terms.
There are so many online lenders that there are usually options for every type of applicant. If you have poor credit, an online lender may be your best bet to get approved, although you will likely end up with a very high interest rate (subprime borrowers can get stuck with loans upwards of 22%).
If you have great credit, you may find the most competitive rates online, rates that may even beat those offered by traditional lenders. But these lenders vary greatly in terms of reputation and customer service, so it’s imperative that you do your homework before signing with any online lender. These companies typically require much more vetting than would be necessary with a traditional bank or credit union.
While there are a lot of different places where you can secure a car loan, they all take the same factors into consideration.
Your best available car loan rate will depend on the following factors:
Your credit score and credit report
Your income and employment history
Your down payment
Your loan term
Your car
The current economic conditions
Each of these factors is looked at carefully when the lender is determining what car loan rate they will offer.
This is the biggest factor that is within your control that will dictate the car loan rate you are offered. Your credit score is a fast and easy way for lenders to determine how creditworthy you are and how likely you are to repay a loan.
Below 580: Poor
580 to 669: Fair
670 to 739: Good
740 to 799: Very Good
800 and up: Exceptional
By fitting your score into one of these brackets, they can easily decide if you are responsible with your accounts and able to manage your money. Lenders can then take a closer look at your credit report to learn more about your financial health.
Do you pay your bills on time? Are you in a lot of debt? All of these factors will help lenders decide what rate you are offered. The higher your credit score is, the better your interest rate will be.
Here are a few resources to help you get your finances on track before applying for financing or refinancing. Improving your score and reducing your debt-to-income ratio can make a huge difference in the financing available to you.
Lenders want to ensure that you have a source of income to pay for the new car you are getting. They will not want to give you a loan where your payments will be $800 a month if you are only earning $1000 a month.
Down payments are important for a lot of reasons, and a sizable down payment can even lower your interest rate. Lenders view you as less risky if they see that you have made a large down payment.
In general, you will be offered a better interest rate if you select a shorter repayment period. Your loan payments will be higher every month because you are not stretching out your repayment period, but you will save a lot of money in interest.
The car that you are buying will also affect the interest rate. New cars come with lower interest rates because they will have a higher resale value should you default on your loan. If you are buying an older car, you may have a harder time finding a loan in general.
The only factor that you have no control over whatsoever is the current economic conditions. When the economy is dealing with high inflation, the interest rates will be higher to curb spending and try to stabilize the economy.
There is nothing that you can do to change this, so your best bet is to wait until the interest rates go down before securing a new loan. This is not always possible, however, so shopping around for the best rates available to you is especially important when rates are high.
There are many different lenders that offer car loans, so the more research you do, the better off you will be. Research your options, negotiate where appropriate, and don’t let yourself get pushed into a deal that doesn’t work for you.
Get in touch with Auto Approve today! Our experts can help you refinance your loan and lower your car payment, interest rate, or both.
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