Best Auto Loans for 2017
Even with so many commuting options available and the sudden popularity of car-hailing apps like Uber and Lyft the past few years, nothing beats having your own car. It’s ultimately more affordable, and you don’t need to rely on others or ask permission just to get to your destination on time.
The thing is, getting a vehicle of your own can sometimes be a scary and intimidating thought, especially for first timers. Thankfully, auto loans still exist in 2016. For most people, the initial thought is getting an auto loan with a really low rate. Chances are, you will want to find the lowest and best car loan rates that suit your situation best when buying your next car.
Interestingly, data from a CNN report reveals that Americans have borrowed an all-time high of $1 trillion by the end of last year just for financing their cars. Additionally, a whopping 86% of new car buyers choose to finance their vehicle. According to information from Experian, the average new car loan is around $29,500. As such, know that you are not alone in dealing with these issues on buying a new vehicle, and this article is here to help you navigate the world of auto loans.
Upon doing research, we considered the different types of auto loan services based on the following categories, also making sure that each company that made the list offered competitive interest rates:
- Best Online Auto Loan Services: CarsDirect and MyAutoLoan
- Best of the Big Banks: U.S. Bank, LightStream, and Bank of America
- Best for Bad Credit: Auto Credit Express and Capital One
As previously mentioned, the auto loan options we have looked at and picked all have competitive interest rates. Of course, other details come into play, such as offering various loan types, giving quick approval, and providing great customer support and resources. Here are more in-depth information on the best ones we’ve found:
Best Online Auto Loan Services
With everything these days almost available online, getting loans is just another thing technology has improved. Here are two of the best online auto loan services we found:
While CarsDirect gained popularity as a car-buying service, you can also go through them when you want to get the best auto loan in the market. They have a wide range of information that caters to customers, including a loan calculator, trade-in value calculator, and plenty of articles tackling topics like buying strategies and other information about car loans, thus getting a hand over many of its competitors.
On top of that, they do not need a minimum or maximum loan amount – you can apply for whatever amount you want. This is a great feature other companies lack, as many would prohibit you from taking a loan less than $10,000, for example.
The only probable downside for these guys (as with most online car loan companies) is that after submitting your information, lenders may still call or email you even after you have already selected your loan. For people who get annoyed easily by spam or calls, this is probably not the best option for you.
MyAutoLoan helps customers connect with lenders for all major loan types. A nice feature they have is that they allow applications for lease buyouts as well. The usual FAQ page is available too, tackling basic customer questions such as whether applying for a loan would hurt your credit score, and if you are required to use the full loan amount or not. In addition, tools like calculators are available to help you estimate the amount you can borrow, and what the total payment will be depending on your selected loan amount and situation.
A great feature they have is the interest rate estimation tool. If you are new to getting loans, or if you’d like to compute how much you have to pay based on your credit score, loan type, and location, theirs is the way to go as you can use those generated information to compare and get the best deals. For example, a $25,000 new car loan may vary in APR depending on the location and credit score – an APR of 2.27% is available for someone in Knoxville, TN with excellent credit, but the APR for the same loan would be 8.63% for someone with average credit in Los Angeles.
Best of the Big Banks
Nothing beats the security of going to a bank. It’s traditional, and for many, feels more tangible and real. We found three of the best big banks to get a car loan from:
Upon looking at all the pros and cons, we think U.S. Bank may be offering one of the best services, combining a good number of loan options, along with competitive interest rates, and even available consumer-friendly information of big-bank lenders.
The varied loan options even include loans for cars that were bought from private sellers, something that many big banks would ignore. In addition, U.S. Bank will not automatically give used-car buyers a higher interest rate as most would do. If the used car is less than six years old and has fewer than 100,000 miles, then the interest rate should be quite average and competitive.
Another impressive thing to consider about U.S. Bank is that they have a discount program for green cars, reducing interest rates by 0.5% for people who choose fuel-efficient, EPA-certified “SmartWay” Vehicles. These would include a large number of options that go beyond electric cars or the ever-popular Toyota Prius. In the family sedan category alone, there are 22 available models for 2016, even more so with other qualifying models.
Lastly, the company’s auto loan process is very detailed, which is great for customers especially if they are looking for transparency in all their transactions.
LightStream is a subsidiary of SunTrust Bank, and as such, is a great option for people who have great credit scores. The company offers amazing rates starting at 1.99% for new cars as well as used cars bought from dealers.
LightStream also offers “Anything Loan” which does not require a lien (security) against your car, and involves minimal time and paperwork. Another great thing about them is that they will match other lenders’ offers, with a $100 guarantee if you are unsatisfied as a customer within the first 30 days of getting your loan. However, this money is given only after you complete their service questionnaire.
Because of their great offers, one of the main things to consider is that LightStream can be very picky about who they give their loan to. Other than the usual requirement of having great credit, they need proof that you have a healthy income and would also need to approve your assets. Their site does not offer much advice on buying cars either, which is a turnoff if you are unfamiliar or new to buying a car.
Bank of America
Bank of America has a number of options and a wider range of car types accepted, including loans for cars bought from private sellers and lease buyouts. You can even get vehicles up to 10 years old, provided it has a maximum of 125,000 miles.
The bank also offers competitive interest rates, and current customers can even get interest rate reductions. As Bank of America has over 5,000 branches, you can do business practically anywhere, or even manage your account using their many online banking tools.
Because it is a huge company, customer service is sometimes poor. Additionally, you are not allowed to take your business to independent car dealers either.
Best Auto Loans for Bad Credit
Getting bad credit is something a lot of people experience, but it should not stop you from moving forward. Here are two of the best companies that offer auto loans for people with bad credit:
Auto Credit Express
Auto Credit Express is a company specializing in helping people with poor credit in buying cars. Because of that knowledge, people will be able to explore better options and better interest rates than they would be initially offered. The company even helps customers who have already declared bankruptcy, and allows loans to special finance dealers.
The great thing about this company is that they will not restrict you from applying based on things that usually hinder bad-credit customers from getting newer cars, such as loan amount, vehicle age and mileage. The company has received an A+ rating from the Better Business Bureau.
Capital One is one of the most popular names, and with good reason. While it is one of the largest sellers today, they are exceptional at allowing customers with not so great credit to have more options in buying a car. The bank allows loans for vehicles with up to 125,000 miles and up to 10 years old.
They also offer a number of online account management tools. They have competitive interest rates, as well as loan calculators, and a tool called the Auto Navigator which can help you compare payments on specific cars. Another attractive feature is that you can get pre-approved, and get information through their extensive FAQs that cover topics like what documentation is required when getting a loan, or even what to expect when you visit your dealer.
Best Car Loans In a Nutshell
Here is a quick look at which best car loan will suit your situation:
|Auto Loans||Best for|
|1||CarsDirect||Drivers who need a small-dollar car loan or are okay with buying an older used car.|
|2||MyAutoLoan||First-time buyers or drivers who want to work with lenders to purchase their leased vehicle.|
|3||U.S. Bank||Drivers who want a loan to buy a vehicle from a private seller.|
|4||LightStream||Drivers who have great credit, substantial income, and want a loan fast.|
|5||Bank of America||Drivers who value Bank of America’s huge network of branches and/or want to buy a slightly older and higher-mileage vehicle.|
|6||Auto Credit Express||Bad-credit buyers who need a lot of options.|
|7||Capital One||Drivers in the mid-Atlantic and Southern regions who have bad credit.|
Seven Tips for Getting the Best Car Loan Rates
After considering some of the best places to get a loan, here are a few more tips and strategies you can use to make sure you get the best rates.
1. Get your credit score
One of the most important things in your quest for a car loan is knowing your credit score – it affects what kind of interest rate you can get. The better your credit, the better rate. Inversely, the worse your credit, the worse your rate, that is if you can even qualify for a loan.
To help you grasp the idea, take a look at the table below. Taken from myFICO’s calculator, information below displays how different credit scores can affect rates, which affects how much you pay monthly and how much extra you pay on top of the loan amount. The table below is based on a $20,000 new car loan over a four-year term, where the APR (interest rates) are national averages as of November 2016:
|Credit Score||APR||Monthly Payment||Total Interest Paid|
There is a huge difference between interest rates for the highest and lowest scores, even though the additional $100 in monthly payment doesn’t seem like a huge difference. In fact, it seems pretty reasonable, until you realize how much it adds up in the long run.
There are many credit check sites and services such as Identity Guard and Credit Karma, which can check your credit score before you do any shopping. However, you should also note that whenever lenders run a credit check, your credit score may go down. Bankrate advises that you limit your car shopping to a two-week period, so your score will not take multiple hits.
2. Shop around before going to a dealer
It’s never safe to assume that dealers will offer you the best rate, and this is especially true if you have a weak credit score. It’s best to do your research, comparing interest rates from various sources. This may include online auto loan companies, banks, and credit unions. Once you have done your research, get yourself pre-approved for the loan of your choice before you visit the dealer.
Getting approved is highly important and has a few more benefits compared to if you rely on dealer financing. For one, you can negotiate an even better rate. Secondly, because you are aware of what rates you should be able to get, you can easily tell when the dealer is giving you a bad interest rate.
Lastly, knowing such information gives you that confidence, allowing you to go in comfortably and reducing the chance the dealer will give you transactions that are less than what they’re worth.
3. Sign up for a shorter loan term
As with any other loan out there, you will pay less in the long run if your monthly payments are paid over a shorter period of time. To give you an idea, look at this table based on information taken from Bankrate’s calculator. It assumes a loan of $20,000 and an APR of 5%.
|Loan Term||Monthly Payment||Total Interest Paid|
|36 months (3 years)||$599.42||$1,579.05|
|48 months (4 years)||$460.59||$2,108.12|
|60 months (5 years)||$377.42||$2,645.48|
|72 months (6 years)||$322.10||$3,191.10|
|84 months (7 years)||$282.68||$3,744.97|
Although it may seem attractive to take the longer term because of its lower monthly payments (about half the amount in 7 years versus in 3 years), similar to the first point of getting better credit scores you also have to consider the long term. Look closely at the last column which discusses how much interest accumulates. If you pay off the loan for $599.42 a month in three years, you pay a total of $21,579.05 ($1,579.05 interest), as opposed to paying $282.68 a month over 7 years wherein you pay a total of $23,744.97 ($3,744.97 interest).
With this in mind, be wary of dealers who will try to convince you to get a loan term that takes many years by showing you how low your potential monthly payment will be. It will only seem attractive until you realize that they’re just diverting your attention from the actual price you have to pay overall.
4. Consider buying new
A tip that often goes unnoticed is that usually, new cars would give you a better interest rate than when you target getting a used car, as average interest rates for used cars are significantly higher than for new cars. The reason behind this is because most people looking for loans for used cars often have lower credit scores compared to people who are seeking a new car loan.
Downside to this is that new cars instantly lose so much value once you drive it off the lot, which is why used cars also have that appeal. Just make sure you check which has better financing – similar sticker prices, for example, may end up making the new car a better deal. For instance, if you look at similarly-priced new mid-range car versus a used luxury car, you might be better off with the new car.
5. Don’t use your loan to pay for extras offered
A hidden fact is that car dealers often make money selling all these “extras” such as extended warranties or upgrades such as security systems, rust-proofing, and even fabric protection.
Experts say these extras often do not make any sense, and even less so when adding them to your loan. Because of the interest, you’re essentially paying more for these add-ons than they’re actually worth, and much more because of the accumulated interest.
If there really is an add-on you really need, just buy it separately. This may also include other things like registration fees, sales taxes, and other additional expenses!
6. Take advantage of interest rate discounts
There will be lenders who will consider lowering your interest rate if you opt to pay bills online or sign up for automatic payments. There are others that give a discount if you already have a previous banking relationship with them, or even sometimes if you’re buying a specific type of car. These discounts aren’t always announced, so don’t be afraid to ask your dealer if they have such offers.
7. Deals with 0% interest exist, but make sure to research before accepting
Yes, there are deals with 0% interest, but these types of offers will not show up at banks or credit unions. Instead, you might find them at the dealership by your car manufacturer’s lender. However, proceed with caution – sometimes these 0% interest deal is in place of a different promotion, such as a rebate worth $1,500 for example.
It takes a bit of effort and computation, but you have to check which deal will save you more money in the long run – sometimes taking that rebate is a better deal. In addition, usually these 0% deals have shorter loan terms. For example, you might have only a three-year option and nothing else, pointing to much higher expenses each month. As discussed previously, you’ll pay less in the long run, but it may not fit in your current budget should circumstances not be ideal.
Auto Loan Calculator
Buying a car and getting a loan for it is a serious and often intimidating task, so we are sharing this calculator that will help you check what will fit your budget and situation. This calculator will help you to quickly estimate monthly payments for your desired loan amount, based on your personal credit score.
How We Picked the Best Auto Loans
It’s no surprise how most people select an auto loan company based on which provides the lower interest rates. However, getting these ideal and competitive rates also rely on your credit score and which care you have your eye on. With those in mind, we have included more than just interest rates in checking which companies will give you the best auto loans around.
When searching for a company that suits you, remember to consider credit unions and local banks – there are many competitive rates available, and not all of them are available online. An additional tip is to remember that credit unions are nonprofits, so they have lower fees and potentially lower interest rates too. The only thing you might need to deal with is that their application and approval process may take longer than normal.
Overall, the best auto loan services we have collected provide the following:
- All or most major loan types – The best lenders today offer loans for both new and used cars, refinancing, and sometimes even lease buyouts. Used car loans are available even when you’re buying from a private party too, and not just from a dealer.
- Instant or same-day online approval – Most companies offer their services online now anyway, and you’re probably eager to get your hands on that vehicle you’ve had your eye on, so we’ve selected only lenders who allow customers to at least begin the approval process online.
- Online payment calculators and other resources – Again, let’s technology do some of the dirty work. The best lenders provided calculators so customers can easily compute the best terms for them without any strings attached. We especially loved lenders that offered other resources and tools, including general shopping tips and in-depth articles.
- Comprehensive customer support – The best lenders had great customer support, with contact details that are easy to find, and also provide very detailed FAQs even beginners can understand easily.
- Competitive interest rates – Based on Bankrate’s national average for new and used cars, the best lenders have rates that rival or even beat this average.
- Solid customer service – We took J.D. Power’s 2015 Consumer Financing Satisfaction Study into consideration whenever applicable.
You’re in the Driver’s Seat When Shopping for the Best Car Loans
The market for best car loans is a very competitive one, regardless if the buyer has great credit or not. Competition is fierce, and you can use that to your advantage. As discussed above, doing a lot of comparisons and taking notes, while somewhat lengthy and takes effort, will get you far.
Always remember to look up your most recent credit score, and ask for the best loan terms and even possible discounts that are often not even advertised. Check how each of these factors can affect your rate and loan. The aforementioned companies are great places to start.