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How to Pay Off Your Car Loan Faster: Here’s What to Consider

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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There are several ways to pay off your car loan faster, several of them without shelling out an extra dime. Auto debt not only accounts for about 9% of all consumer debt in the U.S., it’s growing: monthly payments are larger and terms are longer than they were a year ago. Paying off your car as fast as possible frees up that money for other things.

How to pay off your car loan faster without paying more

The faster you pay off your car loan, the less you’ll pay in interest. But it may not always be possible to throw more money at your monthly payment. Here are some ways you may be able to pay off your car faster without paying additional money on the loan.

Refinance

This is the process of applying for a new auto loan to pay off your existing loan, hopefully with a better interest rate or term.

Pros. A refinance loan could help you pay your car off sooner and with a lower interest rate. Maybe your credit score has improved since your original auto loan — the best rates tend to go to those with the best credit. Average rates dropped at the end of 2020 with an average APR of 4.6% for a new car loan versus 5.5% at the same time in 2019.

Cons. Downsides should be few except for the time spent shopping for the best rate and any fees you might have to pay such as those to your state’s department of motor vehicles to transfer your car’s title to the new lender. These costs should be low, under $100.

Who it may be good for. An auto refinance loan may be a good option for you if:

  • You have a high interest rate and either your credit has improved since you signed for the auto loan or you’re not underwater on the auto loan, meaning you do not owe more on your car than it is worth.
  • You do not face high penalties for paying off your current loan early.
  • You got the auto loan through a dealership, especially a “buy here, pay here” establishment. The average hidden interest rate added by dealers is 2.47% and “buy here, pay here” businesses are known for predatory lending practices.

How to do it. Call your lender to find out how much you owe and your APR. Refinance lenders usually ask for this information, so it’s good to have it on hand. Then you can look for the best auto refinance companies and find potential auto refinance offers.

APR

As low as
1.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Disclosure

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.


Advertised rate is for new and used auto loans for an offered loan amount of $10,000 with a 36 month term.

Cancel any add-ons

Common auto loan add-ons include guaranteed asset protection (GAP) waivers, service contracts or extended warranties, tire and wheel warranties and more — you may have agreed to these when you bought your car without understanding the full cost. Canceling them will decrease how much you owe on your auto loan, allowing you to pay off your car loan faster.

Who it may be good for. Anyone who has add-ons may be able to cancel them. The less you owe, the less you pay.

How to do it. Check your car contract, call your lender or call the dealership to see if any add-ons are listed on your paperwork. If there are any, find out what they are and consider canceling them to get a prorated return. You may need to fill out some paperwork to officially cancel the add-ons, but a few hundred dollars may be worth it.

Special note. If your car has a history of needing repairs, take that into consideration before deciding to cancel an extended warranty. If you are underwater on your car loan, think carefully before you cancel GAP, which is made to protect upside-down borrowers.

Make payments every two weeks

Instead of paying once a month, take your existing car payment and split it in half. Paying every two weeks means your loan balance is continually decreasing, which has the effect of paying less interest over the course of the loan.

Why it can be good. This is a way to essentially make an extra payment without forking over extra money.

Who it can be good for. By doing this, you’re not paying any more than you normally would, but it has the effect of making an extra payment a year, so it may be especially good for someone on a tight budget.

How to do it. Check with the lender to be sure you won’t run into any prepayment penalties. If not, make a half payment every two weeks instead of one full payment each month. You could automate your checking account to send the payment, or give permission to the lender to automatically pull the payment.

How to pay off your car faster with the most bang for your buck

Have extra cash to put toward your auto loan? While the methods above are good, the fastest way to pay off your car is to increase the amount you’re spending. Almost all of these tips involve making extra payments to the principal, the amount you owe on the car not including interest. But first check with your lender that you will not be penalized or charged a fee for prepaying your loan.

Make extra payments to the principal

Why it can be good. Auto loans have simple interest, which means that for every dollar you put toward the principal, you pay exponentially less interest to the lender.

Who it can be good for. Anyone who has an auto loan from a lender who doesn’t penalize early payoff or payments to principal.

How to do it. Call the lender and ask how you can make extra payments to the principal only. You should do this because extra payments not to the principal means you’re paying interest — all you’re doing is giving the bank money early. If you make payments to the principal, you’re not paying as much in interest, which is very good.

Round up your car payment

If you find it difficult to save money or you don’t have quite enough cash to make a whole extra payment, check out this round-up method.

Why it can be good. You could pay off your auto loan early without changing how often you make your payments.

Who it can be good for. If you have a hard time saving money, this is a good way to do so.

How to do it. If the lender will not charge a prepayment penalty, you have nothing to lose by doing this and you can do it in two ways:

  • Simply round up your monthly payment. For example, if your monthly payment is $350, round up and pay an even $400.
  • Use a money savings app, such as Acorns, to round up what you pay on all of your purchases to the nearest dollar and then pay that money to the auto loan. For example, if you got gas for $15.30, the app would round the charge up to $16 and $0.70 could go into your savings account. A little goes a long way and by the end of the month, you may have $50 you could put toward your auto loan.

Attack other debts: avalanche vs. snowball

We’re not talking about the weather; these are two popular methods used to pay off debts faster. The avalanche method prioritizes paying off high-interest debt first. The snowball method involves paying off your debts starting with the lowest amounts. You can read about more debt payoff methods here.

Why it can be good. These are methods that could help you pay off all your debts, not just your car loan.

Who it can be good for. If you have multiple loans or debts, these methods may help you organize them and pay them off.

Snowball method: how to do it. This is a three-step pattern that should allow you to “snowball” your money to pay off your car loan faster.

  1. Look at your loans and rank them from lowest to highest.
  2. Then focus on that smallest loan, paying it off as quickly as you can with any extra cash available while making minimum payments on your other debt.
  3. Once it’s paid off, congratulations! You no longer have that payment to make. Choose another loan and repeat the process, using the money you would have paid on the loan you paid off.

Avalanche method: how to do it. This method prioritizes debt with the highest APR. For example, if you’re paying a higher interest rate on credit card debt than your car loan, you may be better off using any extra cash to pay that down first.

  1. Look at your loans and rank them from highest APR to lowest.
  2. Determine how much extra cash you can put toward the debt with the highest interest while making minimum payments on your other debt.
  3. Once it’s paid off, roll the money you were using to pay down that debt into the next one.

Utilize any windfalls

Regular extra payments may not always be realistic for your budget, but if you get any money outside of your budget that you didn’t count on, using that money as one-time extra payment toward the principal could really help.

Why it can be good. Any “windfalls” you have, such as a tax return, a refund, a bonus, a big tip or a pay raise, can be put toward the principal on your auto loan.

Who it can be good for. If you were not counting on the windfall, the extra money you got is just that — extra money. By using it as a payment to principal on your auto loan, you’ll save more money because the less you owe, the less interest you’ll pay.

How to do it. It might take some self-control, but use the windfall cash to pay the auto loan. The sooner you’ll pay it off, the more money you’ll have later to spend on things you’ll enjoy.

Make extra income

If your regular paycheck isn’t able to stretch any further, consider a side hustle and put the earnings toward your auto loan.

Why it can be good. A part-time job a few hours a week could add up to enough cash to make a significant dent in what you owe.

Who it can be good for. Anyone with some extra free time may be able to find a part-time job, temp work, freelance assignment or other gig.

How to do it. Depending on what you’re willing and able to do, you could sign up at a temporary work agency, look on job sites and/or talk to people you know about any job opportunities. Just remember to spend the money you make on paying off the principal of the auto loan. You can check out this guide to monetizing a hobby.

Remove extra expenses

What are you willing to cut out of your budget or give up to pay off your car loan faster? Again, every bit helps, if the extra cash goes toward the principal of your auto loan.

Why it can be good. If you aren’t willing or able to make more income, spending less can be an equally good option and, as a bonus, you can keep doing it even after your car is paid off and save the money.

Who it can be good for. Practically anyone could do this.

How to do it. Take a look at your credit card statement or write down what you buy so you can see your spending habits in black and white. Then, decide what you could cut out or possibly get a better deal on — it might add up to more than you think. Maybe you could eat out once a week instead of every day. Maybe you could find cheaper auto insurance. Then apply that savings to your auto loan principal.

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How to Get a Car Loan With Bad Credit

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

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A down payment and a strong cosigner are usually the best ways to get a car loan with bad credit. It may seem challenging to find a bad credit car loan, but there are many lenders willing to work with borrowers who have poor or damaged credit. The challenge is finding an affordable rate and avoiding any scams along the way. Following these steps could help increase your chances of getting approved for an auto loan with a rate and terms that work for you.

Steps for getting a car loan with bad credit

You could go straight to a dealership and apply for a loan, but there could be a better way to get your most affordable bad credit auto loan.

Step 1: Check your credit

There may be an error dragging down your credit score. Check your credit history for free at AnnualCreditReport.com to make sure that there are no mistakes.

If there are mistakes, here’s how to dispute a credit report error. You’ll need to write to the credit bureaus that show the error and the financial institution that gave the incorrect report. Keep copies of the correspondence you send. Once credit reporting agencies receive a dispute, they must investigate and report back to you within 30 days. If you are unsatisfied with the investigation, you could issue a complaint to the Consumer Financial Protection Bureau.

Credit history vs. credit score

Negative information on your credit report can affect your credit score. There are several ways to check your score. When you know your score, you’ll have a general idea about the APR you may receive. While there’s no set minimum credit score for buying a car, the rule of thumb is this: The higher your score, the lower your auto loan rate.

Step 2: Set a car budget

As the modern marvels of machinery that they are, cars are expensive. Americans with the lowest credit scores borrow an average of $15,845 for used cars and $27,867 for new cars. It’s vital to make sure your vehicle is affordable to you. You could use the 20/4/10 rule as a guideline for your car-buying budget: Put 20% down, finance for no more than four years and keep your total transportation costs under 10% of your income.

20/4/10 Rule Example
Gross monthly income

$4,000

10% of gross income

$400

Average cost of car insurance

$78

Estimated cost of fuel

$50

Estimated cost of maintenance

$10

Recommended monthly car payment

$262

Your car ownership costs will vary, but you could use a car affordability calculator to see what could fit in your budget. If you want to get a professional’s opinion on your credit and budget situation before buying a vehicle, the National Foundation for Credit Counseling offers free and low-cost credit counseling.

Step 3: Save a down payment and look for a cosigner

While it’s possible to find a bad credit car loan with zero down payment, down payments can:

  • Increase the likelihood that a lender will make you a loan offer
  • Possibly lower your APR
  • Prevent your car loan from being underwater

The traditionally-recommended down payment is 20% of the car’s price. How much you actually put down is up to you. If you’d like help saving, here are some of the best money-saving apps listed on our site.

A cosigner could help

If you’re having trouble getting approved for a car loan or a car loan at the rate and terms you prefer, a cosigner could help. The downsides are that a cosigner is risking their own credit and possible fees should you default on the loan.

Step 4: Research lenders and get preapproved

Potential lenders could include your own bank, credit union or online lender. We looked at more than 100,000 subprime auto loan applications and chose the three top bad credit car loan lenders based on popularity and average APRs borrowers received.

Best Lenders for Bad Credit Car Loans
LenderAverage APR for Subprime BorrowersAmountsTerms
Capital One

12.50%

$4,000+36-84 months
RoadLoans

17.84%

$5,000 - $75,000Up to 72 months
Carvana

19.39%

Not available36-72 months
Source: LendingTree customer data, Q2 2020

Whichever lender you choose, applying for a preapproval — ideally, more than one — before you go to a dealership. Dealers can and often do raise a customer’s interest rates. Ergo, it’s best to cut out the middleman and apply directly to a lender.

Consider a personal loan instead

If you’re having trouble getting a car loan, a personal loan might be an option. The pros of using a personal loan to buy a car include flexible loan amounts and no restrictions on vehicle age or mileage. However, personal loans tend to have higher APRs than auto loans.

Step 5: Negotiate at the dealership

By getting a loan preapproval, you can walk into the dealership focused on getting your best price possible on your new car. Dealers will try to distract you with their own loan offers and talk of monthly payment. A car-buying secret is to keep your focus on the total price of the vehicle. Once that’s set, see if the dealer can beat your preapproved loan rate. Pay attention to how long the loan term is. Even with a lower rate, you may end up paying more in interest over a longer loan.

Here’s more on how to negotiate car price and when to walk away.

Step 6: Sign and set up automatic payments

Finalize the paperwork with the seller and drive off with your car. You may have up to 30 days from the day you sign until your first payment and it may take almost that long for your state government to process the paperwork and get the permanent vehicle registration to you.

Some lenders will offer you the chance to sign up for automatic payments at the same time as when you sign for the car loan. Other lenders will contact you regarding payment methods.

Set up automatic payments so that it’s easier to make all payments on time. You’ll still be able to pay off your car loan faster, if you choose.

Refinance for a better rate later. Paying your car loan on time could help increase your credit score and decrease the amount you owe. You could refinance your bad credit car loan to a better rate after roughly two years, give or take.

Avoid bad credit car loan scams

Buy-here, pay-here dealerships advertising “No credit? Bad credit? No problem!” often come with high rates and fees. They know that many customers who walk in may not qualify at traditional dealerships and instead depend on used-car businesses that serve as their own banks.

“In general, buy-here pay-here financing is just overpriced junk,” said Rosemary Shahan, founder of Consumers for Auto Reliability and Safety (CARS) Foundation. “There are just too many games that they can play.”

Some in-housing financing may be reputable, but unscrupulous businesses have been known to use these tactics:

Yo-yo financing

Yo-yo financing is when dealers allow you to sign a contract at one rate, and then change the terms of the contract a few weeks after you’ve taken the vehicle home. They usually claim that the “financing fell through” and you need to sign a new contract at a higher interest rate.

To protect yourself, keep copies of all loan documents you sign, and don’t drive away with a car until you’ve signed for it.

Fees, overpriced extras

There are dealer fees that can’t be avoided, then there are fees you typically won’t find with traditional lenders, such as loan origination charges or steep late payment fees. These may come on top of overpriced extras. If you want add-ons like extended warranties, do your research ahead of time. You’ll most likely find them elsewhere for less.

Undervalued trade-ins

Your old vehicle is an asset and you should get as close to Kelley Blue Book value as possible if you decide to trade it in. Some shady dealers will undervalue your vehicle, leaving you with less money to put toward your new car. Financing a larger amount than necessary at high rates and fees is exactly what the unscrupulous dealer is hoping for. A private sale will almost always yield the biggest bang for your buck, but that might be inconvenient for you.

Mechanically unsound vehicles

Some unscrupulous used car dealers sell lemon vehicles to unsuspecting customers and worse, label them “certified pre-owned.” Legitimate CPO vehicles are generally sold through franchised dealers with the automaker’s seal of approval. Protect yourself by checking for safety recalls. If the dealer doesn’t provide a vehicle history report, there are several places you can buy a VHR for yourself.

Remember, once you’ve purchased the vehicle, it’s very difficult to return it.

Bad credit car loan FAQs

Deciding on whether to buy a new or used vehicle? Due to depreciation, buying a three-year old vehicle can mean you only pay about half of what the vehicle costs new, and the car still has most of its life span left. Borrowing less for a car may also increase your loan approval chances.

Try to steer clear of 84-month car loans. Yes, it’s a way to lower your monthly payment, which may be important in finding an affordable auto loan. But the risks usually outweigh the benefits: higher interest charges plus a greater likelihood that you’ll wind up underwater on your car loan. By the end of those seven years, you could be on the hook for monthly car payments and repair costs.

Purchasing a car before filing for bankruptcy can be seen as a sign of fraud. You may be able to buy a car during your bankruptcy.

Yes, but it might be best to wait a year or two instead of immediately getting a car loan after a bankruptcy is discharged. This could allow you to attain a car loan with lower interest.

If you don’t get approved for an auto loan, ask the bank why. Do you have insufficient income? Do you have a recent auto repossession on your credit report? Finding out why could help you fix the problem. Just because one lender didn’t provide a loan offer, doesn’t mean you can’t get a car loan.

This depends on the lender and your application. Some banks, credit unions or online lenders will not lend to you unless you have a cosigner. The cosigner agrees to pay for your loan if you stop making payments. If you have low income and bad credit, you’ll probably need a cosigner.

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The Best Auto Loans: New & Used Car Loan Rates

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Just because cars are getting more expensive doesn’t mean your car loan has to break the bank. Car payments have been hitting new highs recently, and with the added economic pressure that COVID-19 may be causing, finding your best auto loan rate is more important than ever. To that end, we looked at more than 800,000 successful loan applications from over 28 lenders to find the best auto loan rates.

Best Auto Loan Rates
LenderNew Car Starting APR*Used Car Starting APR*Terms (months)Amounts
Best overall: Consumers Credit Union

2.69%

2.94%

0-84

Up to $100,000

Best auto loan rates for prime and subprime credit: Capital One

3.39%

3.39%

36-84

$4,000+

Best for midprime credit: LightStream

2.49%

2.49%

24-84

$5,000-$100,000

Best for a completely online experience: Carvana

N/A

3.90%

36-72

Not available

Best for those with a military affiliation: Navy Federal Credit Union

1.79%

2.29%

12-96

$250 min., no max

Best auto refinance rates: Auto Approve

N/A

1.90%

12-84

$8,000-$100,000

*Starting APRs may include an autopay discount.

Best auto loan rates overall: Consumers Credit Union

Consumers Credit Union
APR

As low as
2.69%

Terms

84

months

Fees

No Origination Fee

SEE OFFERS Secured

on Consumers Credit Union’s secure website

Don’t let the words “credit union” scare you off. Consumers Credit Union offered the lowest average APR across all credit tiers among lenders we examined. Joining the national financial institution only requires a one-time payment of $5 to the Consumers Cooperative Association; unlike some other credit unions, you don’t have to live in a certain county or work for a certain employer to qualify for membership. However, if you prefer to apply for an auto loan in person, Consumers Credit Union only has branches in Illinois.

Consumers Credit Union rates

APRs for cars that are model years 2018 and newer start at 2.69%; used cars that are model years 2014 to 2017 start at 2.94%. For used vehicles 2013 and older, the lowest possible APR is 5.49%.

Pros of a Consumers Credit Union auto loan

Getting a preapproved auto loan is important to getting your best auto loan rate. Not all lenders offer them, but Consumers Credit Union does.

Cons of a Consumers Credit Union auto loan

The lowest starting rates that Consumers Credit Union advertises includes a 0.50 percentage-point discount that borrowers can receive by making automatic payments from a Consumers Credit Union account. That discount is halved if you make automatic payments from another financial institution and it disappears if you don’t make automatic payments at all.

How to apply

You could apply on the Consumers Credit Union website or by calling 877-275-2228.

Best auto loan rates for prime and subprime credit: Capital One

APR

3.39%
To
11.25%

Terms

36 To 84

months

Fees

No Origination Fee

SEE OFFERS Secured

on LendingTree’s secure website

Known primarily as a credit card provider, Capital One is one of the largest banks in the U.S. Its size might account for why it’s good for borrowers on both ends of the credit spectrum: among lenders we studied, Capital One offered the lowest average auto loan rates for those with prime (740+) and subprime credit scores (579-). Capital One’s 3.39% starting APR is for new and used vehicles.

Pros of a Capital One auto loan

The Capital One Auto Navigator program gives car buyers a ballpark idea of the car loan rate they can expect and connects them to its network of 12,000+ partner dealerships.

Cons of a Capital One auto loan

The Auto Navigator program offers prequalifications, not preapprovals. This means you’ll have to fill out a complete credit application at a participating dealership. Only then, would you know your exact rate and terms. The dealership is your only car-buying route with Capital One — it does not permit private party auto loans.

How to apply

You could apply for a Capital One auto loan prequalification.

Best auto loan rates for midprime credit: LightStream

LightStream
APR

2.49%
To
20.49%

Terms

24 To 84

months

Fees

No Origination Fee

*Your loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.49% APR with a term of 3 years would result in 36 monthly payments of $292.98.

The online lender LightStream offered the lowest average APR to applicants with midprime credit (580-739) among lenders we inspected. LightStream’s starting used car loan rates are the same as the rates it offers for new car loans. The company is a division of Truist, which formed from the merger of SunTrust and BB&T in 2019.

Pros of a LightStream auto loan

If you receive an auto loan offer with a lower APR, LightStream will beat it by 0.10 percentage points. And if you aren’t completely satisfied with your customer experience, $100 will be deposited into your account, provided you fill out a questionnaire within 30 days of closing on your loan.

Cons of a LightStream auto loan

The lowest advertised auto loan rates include a 0.50 percentage-point autopay discount, which disappears if you don’t enroll in autopay. LightStream does not offer preapprovals — although you could get a regular approval that’s good for 30 days and then go to the dealership.

How to apply

The only way to apply is through the LightStream website.

Best auto loan rates for a completely online experience: Carvana

APR

3.90%
To
27.90%

Terms

36 To 72

months

Fees

No Origination Fee

SEE OFFERS Secured

on LendingTree’s secure website

Across all credit tiers, Carvana is a popular choice among used car buyers. It offers “touchless” car delivery, removing the human element almost entirely from a car-buying experience that’s already online. This could be a major plus when COVID-19 is a concern.

Pros of a Carvana auto loan

Because it’s online, Carvana provides a lot of photos and information about its cars. It has a payment calculator on every car result page to help you crunch numbers.

Cons of a Carvana auto loan

Although it was a popular choice for the best auto loan rates, some other lenders offer lower average APRs. Plus, your vehicle choice is limited to what Carvana has in stock. Lastly, getting your car might be inconvenient or expensive if you live far from a Carvana center.

How to apply

Pick out the vehicle you want on Carvana and then click the “get started” button.

Best auto loan rates for those with military connections: Navy Federal Credit Union

Navy Federal CU
APR

1.79%
To
17.99%

Terms

12 To 96

months

Fees

No Origination Fee

Navy Federal offers the lowest starting auto loan rate on this list. But there’s a catch — you must meet a strict set of membership requirements. New vehicle rates start at 1.79%; late model used vehicles could qualify for rates starting at 2.29%. Navy Federal defines late model vehicles as model years 2019 and newer with 7,500 to 30,000 miles. Older vehicles or those with more miles qualify for rates starting at 3.89% APR.

Pros of a Navy Federal auto loan

You could potentially get an additional 0.25 percentage-point discount off the lowest rate if you meet two additional criteria: you are an active-duty or retired military member and you pay by direct deposit on a new auto loan.

Cons of a Navy Federal auto loan

You must have a connection to the U.S. military in order to qualify for Navy Federal Credit Union membership and therefore a Navy Federal auto loan. See Navy Federal’s membership page for full details.

How to apply

Once you are a member, you can apply for an auto loan online through your account or by calling Navy Federal at 888-842-6328.

Best auto refinance rates: Auto Approve

APR

As low as
1.90%

Terms

12 To 84

months

Fees

No Origination Fee

SEE OFFERS Secured

on LendingTree’s secure website

Auto Approve offered the lowest average refinance rates and was the most popular choice among 22 lenders we examined. It offers refinancing for cars, trucks, motorcycles, RVs, boats and ATVs, as well as loans for lease buyouts.

Pros of an Auto Approve car refinance

Auto Approve assigns individual loan consultants to applicants, so you’ll have one person who will guide you through the car refinance process. The company also handles documents for you that are required by your state’s Department of Motor Vehicles (DMV).

Cons of an Auto Approve car refinance

Auto Approve is not a lender, but a loan marketplace. It performs a soft credit pull to show you potential offers from actual lenders when you apply on their site. A soft pull is not always accurate and when the lender you choose does a hard pull, your final offer may be different from what you expect.

How to apply

Visit Auto Approve or call 844-336-3365 to submit an application.

How we choose the best auto loan rates

To find the best new, used and refinance auto loan rates, we analyzed more than 800,000 successful applications with dozens of different auto lenders made through the LendingTree platform from November 2019 through April 2020. We wanted to know: 1) which lenders consumers chose most often, and 2) which offered the lowest average APR over the course of a six-month period.

To find the best rates for those with military connections, we looked at rates offered by USAA Bank, Navy Federal Credit Union, Pentagon Federal Credit Union and Randolph-Brooks Federal Credit Union, and chose the one with the lowest advertised APR for a traditional new car loan not including any other discounts that may be available, such as discounts for using a car-buying service.

What to do before getting an auto loan

Look up your credit score

Lenders sort applications into credit tiers. Tiers vary by lender, but the interest rate you receive heavily depends on where you fall.

Here’s an example of how different APRs affect the cost of financing a car.

Borrowers with the lowest scores could pay about $16,000 more in interest charges over the life of an 84-month $25,000 car loan.

How Credit Score, APR and Interest Charge Relate
Credit ScoreAverage APRInterest Charge
720 or higher

6.62%

$6,306

680-719

7.13%

$6,828

660-679

8.57%

$8,331

640-659

11.47%

$11,478

620-639

13.32%

$13,569

580-619

15.02%

$15,547

560-579

17.44%

$18,451

Less than 560

20.85%

$22,714

Average APRs based on LendingTree users in May 2020.

Bad-credit car loans

If you don’t have the best credit score, don’t sweat too much. There are bad credit car loans available and steps you can take to improve your credit score. Ultimately, the rate that you obtain is determined by many factors, including your credit score and income, how much you borrow versus how much the car is worth, the car itself, as well as the loan term.

You could potentially refinance your bad credit auto loan after six months to a year for a lower rate, after your score improves.

Choose your auto loan term carefully

The length of your loan is known as the loan term. There are disadvantages and benefits of long loan terms. The longer the term, the lower your payment but the higher the amount of interest you’ll pay over time. For example, for someone with good credit, choosing a $20,000 auto loan with a 6% APR over 48 months versus 60 months will drop your payment by $83 per month, but you would pay an additional $653 in interest over the life of the loan.

How Loan Term, Payment and Interest Charge Relate
Loan TermMonthly PaymentInterest Charge
36 months

$608

$1,904

48 months

$470

$2,546

60 months

$387

$3,199

72 months

$332

$3,865

84 months

$292

$4,542

Use an auto loan calculator

To see the bottom line on an auto loan you’re considering, use an auto loan calculator. Here are three types of auto loan calculators. You could use the auto affordability calculator to help set your budget before you apply for auto loans. Then, when you’re car shopping, you could use the payment calculator to estimate your payments and see the total finance charge.

Estimate 8%-10% in taxes and fees

You’re going to pay more for a car than what’s on the windshield sticker. Taxes, registration and dealership fees can have a sizable impact on what you pay, about 8% to 10% of the car’s price.

If you’re trying to decide how much to spend on a car, consider the 20/4/10 rule. To see how a car might fit into your larger household budget, check out the 50/30/20 rule

Research add-ons

Dealerships and some lenders like to sell add-ons by telling a potential customer that their payment with a warranty is $500. What the salesperson doesn’t say is that the warranty costs $2,000 and without it, your monthly payment is $480. Research add-ons such as an extended warranty or guaranteed auto protection (GAP) before you head to the dealership so you’ll be prepared.

Common Auto Loan Add-on Prices
Add-onTypical PriceEstimated Increase in Monthly Payment
Extended Warranty

$2,000

$20

Auto GAP Insurance

$800

$8

Tire & Wheel Insurance

$900

$9

Appearance Package

$1,000

$10

Get a preapproval, not a prequalification

A preapproval is a firm offer by a lender that performs a hard credit pull. In a preapproval offer, you’ll see the maximum amount you can borrow plus your APR, loan term and estimated payment. It’s vital to get one because dealers can often raise customers’ auto loan APRs by as much as 2 percentage points for their own profit. Apply to a few lenders directly, without the dealership being in the middle, so you know what APR you deserve and get your best auto loan rate.

A prequalification is when a lender does a soft credit pull or no credit pull and gives you an estimate or an example of the auto loan you may get. When you do get a firm offer from a lender, it may be very different from your prequalification.

Apply to a few lenders

When searching for your auto loan, apply to a few lenders of your choice. All inquiries within a 14-day period count as one inquiry, so they will have only a minimal impact on your credit score.

Consider a cosigner. If your credit score or income is low, and you’re not receiving good offers when you apply to a few lenders, consider getting a cosigner. A friend or family member cosigning could make a big difference on being approved for an auto loan and in getting a good auto loan offer.