Auto Loan Rates: What You Need to Know
The auto loan industry is on the rise in the U.S. In 2015, Americans owed about $1 trillion in auto loans, according to CNN. This means that many of the big banks are clamoring to get business from car buyers who are looking to take advantage of the relatively low interest rates right now and avoid having to put a large amount of cash down for their vehicle purchase. It pays to shop around for the best auto loan rates because offers can change rapidly.
Getting the Best Possible Rate on Your Auto Loan
Even though you may be able to get financing from the dealership where you purchase your vehicle, this might not be the lowest rate that you qualify for. The advantage to checking into financing through a larger bank is that you may be able to get more favorable terms.
When you think about the cost of your auto loan, you should consider the total amount that you need to finance instead of focusing on the monthly payment. The reason for this is that you may be able to get a lower rate on your auto loan for paying it off faster. Do not fall victim into getting sold on a longer loan term. Longer loan terms are to the advantage of the lenders because they get to collect interest payments for a longer period of time. Also, remember that your car depreciates in value rather quickly. An extended financing period means that you could be stuck making loan payments on a car that is no longer in good condition to drive or is worth less than the outstanding balance of your loan.
Check Your Credit Score First
Your credit score will be one of the most important factors in determining the auto loan rates that you qualify for. It is best to know your credit score in advance of shopping around for auto loan rates from banks because it will help you frame the extent of your options. If you are looking for ways to improve your credit score so that you can get a better auto loan rate, try paying off any outstanding bills first and taking care of any matters that have already been sent to collections. You can typically order a copy of your credit report for free once every 12 months. This is a good practice in general because it can help you to spot any mistakes on your credit report and correct them before they affect your finances.
Waiting to improve your credit score before purchasing your car can be a smart move. If your credit score is too low, you may not qualify for financing from some of the major banks.
The Difference Between Fixed and Variable Auto Loan Rates
A fixed auto loan rate means that your monthly loan payments will be the same throughout your entire loan term because the interest rate never changes. This is a good option if you are able to lock in a reasonable rate right off the bat. On the other hand, an auto loan with a variable rate means that the interest rate can fluctuate according to an index. Your monthly loan payments will go up or down depending on what is happening with the index.
Often times, you will be presented with a lower initial rate for variable-rate financing. You need to be careful, however, because the interest rate can increase right away. If you have an extended loan term, this is even riskier because there are more opportunities that you will be stuck paying a higher interest rate for each month
Current Auto Loan Interest Rates Offered by Major U.S. Banks
These are some of the current auto loan rate offers from the top banks.
This list does not include credit unions, which could be another competitive source for auto loan financing.
Keep in mind that these rates are subject to change and represent the most competitive offers from each bank. If you apply for an auto loan with extended financing terms, you may end up paying a higher rate from one of these institutions than what you will find below. In addition, if you have a credit score that is less than great, you should expect to have to pay a higher interest rate on your auto loan.
When selecting a bank for an auto loan, customer service is an important consideration. Large banks, such as Bank of America, are able to offer low rates, but they may not get high marks for customer satisfaction. If you already bank with one of the following large financial institutions, you may be able to get a break on your auto loan rate for being an existing customer. Large banks typically try to incentivize customers to do all of their banking activities through their services. As a customer, this is also probably more convenient for you because you can manage all of your accounts at one place.
Slightly smaller banks, such as M&T Bank, tend to have better reviews from customers for service and satisfaction. If you have an unpleasant experience in seeking out financing information from any bank, that is a serious red flag for the rest of your auto loan experience.