May 11, 2019 12:00 PM PT

Best Auto Loan Rates

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Choosing the wrong car loan can cost you thousands of dollars more than the right loan. Before you just jump on the first loan offer you receive, you should evaluate your options.

Each lender has different requirements and interest rates. Some lenders only finance new cars while others offer financing for both new and used cars. Your goal when shopping for auto financing, though, should be getting the best interest rate possible.

Keep reading to learn which lenders offer the lowest rates for specific situations.

How Do You Get the Best Auto Loan Rates?

While you can't control the interest rates lenders or dealerships offer, you can control the qualifications you present to them. Lenders take into consideration your credit score, the loan term, the amount of the down payment, and the type of car when determining your interest rate.

Credit Score
Your credit score lets a lender know your level of financial responsibility. Borrowers with higher credit scores typically qualify for the lower interest rates. Borrowers with lower credit scores usually get higher interest rates. In order to maximize your chances of a low interest rate, you should start working on your credit score immediately.

Loan Term
Typically, the longer you borrow a bank's money, the higher the interest rate they will charge you. It's to your advantage to take the lower term not only to get the lower interest rate, but to minimize the interest that you pay over the life of the loan. By determining the maximum car payment that you can afford each month, you can find the lowest term that fits within your budget. This will allow you to get the lowest interest rate available to you.

Down Payment
Lenders and/or dealerships often require a down payment on a car. If you don't have the money for a down payment, you should have a great credit score to back it up. If you don't, expect lenders/dealers to require a down payment of at least $1,000 or 10% of the car's price, whichever is less.

Type of Car
New cars tend to have the lowest interest rates, whereas used cars cause lenders/dealers to charge a slightly higher rate. Used cars have a lower resale value, which puts the dealer/lender at higher risk of loss should you default on the loan.

Maximizing as many of the above factors as you can will help you get the lowest auto interest rate. Working on your credit score as soon as you think you may want to buy a car is the best thing you can do. Get your credit score as high as you can before you apply for the car loan.

With a great credit score, and a decent budget in mind that keeps your loan term as short as possible and your down payment as high as possible, you should be in good shape to get the best auto interest rate available to you.

What to Look for in Auto Rates

You'll likely get different rate quotes from every lender you apply with, and you should try at least a few. Knowing what to look for in the quote can help you decide which one is right for you.

The Interest Rate Itself
It goes without saying: You should know the interest rate a lender offers. Don't focus only on the amount of the payment and whether it fits within your budget. Specifically ask what interest rate they are charging you.

The Total Cost of the Loan
Once you know the interest rate, you can figure out, or ask about, the total interest charges. You might be amazed to see the difference between a 5% and 10% interest rate over the life of the loan. While the payment difference may look small, you'll typically save thousands of dollars over the life of the loan with a smaller interest rate.

Know the Tradeoff
If you are buying a new car, watch out for the 0% interest rate option. While it sounds great, you may want to see what the "tradeoff" is. For example, if the manufacturer is offering a $2,000 rebate or 0% financing, you have to do some math. If you take the 0% financing versus the rate the dealer would provide, will you save more than $2,000 in interest? If not, you may want to take the dealer's rate and the $2,000 rebate.

What is a good interest rate on a car loan?
A good interest rate on a car loan is the lowest rate you can get given your circumstances.

According to Experian's State of Automotive Finance Market, a good rate for someone with excellent credit buying a new car is 3.47% and for a used car it's 4.19%. You may or may not qualify for those rates, but you can use them as a baseline as you determine where you stand with the rate offered to you.

Best Auto Loan Rates

You have many options when shopping for a car loan. We recommend securing at least one preapproval from an outside credit union or local bank before you shop with a dealer. This way, when the dealer gives you a financing offer on the car you chose, you can compare it to the terms you know you can already get.

If the dealer's terms are better, you win. If the dealer's terms are worse, you still win by using the credit union or local bank's financing rather than the dealer's financing.

We narrow down some of your options for specific categories below.

Best for Borrowers with Good Credit

LightStream
LightStream, a subsidiary of SunTrust Bank, operates solely online. They offer great options for borrowers with "excellent credit or good credit." LightStream considers borrowers with excellent credit those that have at least a five-year credit history with major credit cards, installment loans, and possibly a mortgage. Each trade line that you have should have an excellent payment history as well. They consider borrowers with good credit those with several years' of credit history with the same qualifications, with the occasional "blip" in the credit along the way.

LightStream also looks at your income and assets and your ability to repay the loan. LightStream offers their lowest interest rates to borrowers with excellent credit. They also offer a 0.5% discount for those who opt for autopay versus being invoiced. They offer loans from $5,000 to $100,000 and 24- to 48-month terms.

Best for Borrowers with Fair Credit

LendingTree
LendingTree offers access to a large number of loans because LendingTree has relationships with hundreds of lenders. If you have fair credit, you may have the best chance at finding a lender willing to accept your credit situation.

You apply for the loan online and get an answer within a few seconds. You should know, though, that most lenders do a "hard pull" on your credit. If you shop around, make sure that you do so within a few weeks' time so that the credit bureaus only hit you for one inquiry.

They offer loans for both new and used car purchases and terms between 12 and 84 months. The application process takes just a few minutes as you answer some quick questions about your income, assets, and employment. Keep in mind that LendingTree "strongly encourages" a down payment, even if it's just $200. Once you receive an offer or offers, you get in touch with the lender directly to finalize the process.

Best for Borrowers with Bad Credit

Auto Credit Express
Auto Credit Express doesn't write loans, either. Instead, they match you up with one of the hundreds of lenders that they work with to help buyers with bad credit. Similar to the LendingTree, you'll complete an application online. Auto Credit Express considers the first part of the process your "pre-qualification." You enter your information and then a representative from Auto Credit Express will contact you to get more details.

Since you have "bad" credit, you will likely need a down payment of $1,000 or 10% of the purchase price of the car (whichever is less). Auto Credit Express is a good option not only for those with "bad" credit, but also those with low income or recent negative credit events, such as a bankruptcy or foreclosure.

The nice thing about Auto Credit Express is that they can sometimes find lenders that will accept a credit score as low as 500. You can also get a car loan after having a job for just six months. They work in all 50 states and can send you up to five offers at a time. This gives you the best chance at choosing the loan with the lowest APR and costs.

What's the highest interest rate on a car loan?
Lenders all charge different rates, but the average "highest" interest rate for new cars is 14.93% and 19.51% for used cars.

Best Auto Loan Rates for 60-Month Loans

Capital One
You probably think of Capital One as a credit card company, but they are a great option for 60-month auto loans too. We love that you can check your rate without affecting your credit - this gives you a chance to see where you stand and then compare it to what the dealer might offer you.

They don't require high credit scores; they've written loans for borrowers with credit scores as low as 500. They do require a minimum monthly income of around $1,500. They don't do a hard credit check when you pre-qualify, which leaves your credit score untouched as you shop around for the best rate.

While you can expect higher interest rates if you have a low credit score, this is standard for most lenders. If you have good or great credit, you can expect some of the industry's lowest interest rates on the 60-month loan, though.

Capital One offers terms from 24 to 84 months and will finance new and used vehicles. They will only finance used vehicles that are 10 years old or newer, and they do exclude some manufacturers, including Suzuki, Saab, and Isuzu.

Best Auto Loan Rates for 84-Month Loans

MyAutoLoan
MyAutoLoan matches you with a few lenders to give you options in your car financing. They are a good option for borrowers who have average credit and are looking for a longer term, such as 84 months. Keep in mind that MyAutoLoan does do a hard pull on your credit, and the lender you choose will likely pull it again. This shouldn't be an issue if you complete the process within a matter of a few weeks.

MyAutoLoan offers loan amounts from $8,000 to $100,000 and on both new and used cars. Their minimum monthly income requirement is $1,800. When you apply for a loan with MyAutoLoan, the approval is good for 30 days. You should know, though, that they don't allow cosigners.

While 84 months is the longest term that MyAutoLoan allows, they also offer shorter terms, all the way down to 24 months. You can finance used cars up to 10 years old. Some lenders that they do business with may restrict certain car manufacturers, but this varies by lender.

Best Auto Loan Rates for a Used Car

US Bank
If you are buying a used car for at least $10,000, US Bank offers a variety of options. US Bank, the fifth-largest lending institution in the country, has physical branches located throughout the country (if you prefer to do your business in-person).

One reason we like US Bank for used car financing is the ability to purchase a used car from either a dealer or a private party. Many lenders don't finance purchases from private parties, but US Bank is the exception.

You can get financing on a used car that is up to 6 years old and you may even qualify for a no-down payment loan. You can apply for a loan online, over the phone, or in person. If you apply online, you should have an answer within a matter of minutes.

Bottom Line

It's a great idea to shop around and get at least a few interest rate quotes from several lenders. If you are buying a car at a dealership, you can even get a quote from them and compare all of your options. Keeping your loan term as short as possible will be one of the best ways to limit your interest costs, but shopping around can be the next best thing.

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