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Carvana Auto Loan Review

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Carvana
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A new kid on the car lot, Carvana features light-up vehicle vending machines instead of acres of autos with balloons. And that’s what attracts customers who want to complete the entire car-buying process online. Carvana offers auto loans as well as autos to qualified customers. In order for you to decide if a Carvana auto loan is right for you, we did the research, so keep reading.

About Carvana

Carvana offers used cars and loans on those cars. You do not have to get a Carvana auto loan in order to buy one of its cars. Carvana accepts cash and works with most third-party lenders, so it’s OK if you want to get a loan from your credit union or bank for a Carvana car. But Carvana will only finance its own cars, not cars from competitors.

You can check out the six best auto loans for buying a used car if you’d like to compare Carvana with other possible lenders.

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Carvana financing: At a glance

Here is an overview of what Carvana auto loans are like.

  • Loan terms range from 36 to 72 months
  • Minimum loan amount is $7,600
  • Maximum loan amount is $85,700
  • Trade-ins are accepted

Though Carvana declined to share its APR range, a company spokeswoman said Carvana extends credit to customers with a broad range of credit profiles. “You can get a feel for various APR ranges for each individual vehicle by utilizing the Build My Deal tool on each vehicle’s description page,” Amy O’Hara, associate director of communications told MagnifyMoney. You could also use Carvana’s auto loan comparison calculator to get an idea of the APR you may receive.

Carvana loan rate example

We used the Build My Deal tool to compare APRs for a 2016 Toyota RAV4 LE Sport Utility 4D. The Carvana price is $18,700, which is slightly above Kelley Blue Book’s Fair Listing Price for ZIP code 28270 in Charlotte, N.C.

Credit scoreAPRMonthly payment
780 - Excellent5.5%$313
680 - Good9.70%$351
630 - Average13.37%$387
588 - Below average19.02%$447

APR and monthly payment are for a 72-month loan with a $300 down payment, taxes and title costs included. Rates vary by location.

A closer look at Carvana auto loans

Every lender has pros and cons; here are the ones we found looking at Carvana auto loans. You can compare them with the strengths and weakness of other lenders.

Highlights of Carvana auto loans

  • You may not need excellent credit to qualify since Carvana considers a range of credit profiles.
  • No prepayment penalty
  • “Soft” credit check for Carvana to preapprove your down payment and monthly car payment.

Lowlights of Carvana auto loans

  • Carvana does not accept credit cards; you can’t give your down payment or make your car payment with a credit card
  • You can only finance a Carvana car with a Carvana loan.

You may be required to give a down payment for the Carvana auto loan. If the down payment requirement is too high, a trade-in might help, or a vehicle with a lower price or you go back over your application to see if you forgot to include any other verifiable income.

How to apply for a Carvana auto loan

To apply, you’ll need to go to Carvana’s website. Pick out the car you want before you officially apply for a Carvana auto loan. But you could get prequalified for a Carvana loan first, to better know your budget if you’d like.

To prequalify, you’ll have to input your name, ZIP code, date of birth, address and annual income. Then you can shop around for the vehicle you want. On each vehicle description page, you can play around with the Build My Deal tool to see the estimated total cost, including taxes and shipping, APR, down payment, loan term and monthly payment. Once you find the car you’d like, click on the “get started” button and follow through with the application. You can go here to see a full list of the documents you may need to have ready.

 

Carvana vending machine
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The fine print

You must be at least 18 years old, make at least $10,000 a year and have no active bankruptcies in order to qualify for Carvana financing. A loan offer from Carvana is good for 45 days. If you don’t choose a car within that time period and decide you do want to finance with Carvana later on, you’ll need to do another application. One more note: Before selecting any add-ons from Carvana, such as an extended warranty, do your homework to determine what a fair price is.

Who is Carvana financing best for?

Despite offering loans to a broad range of credit profiles, Carvana financing might be best for those with at least fair credit. Carvana’s online calculator doesn’t offer a credit score option below 550.

It’s terribly convenient to do your car shopping and your financing in one sweep — online. And if you can get a better APR with Carvana than with another lender, go with Carvana. The only way to know that you are getting the best deal, however, is apply to a few lenders. It does not hurt your credit to apply to multiple lenders any more than it does to apply to one lender if you do all applications within a 14-day window.

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How to Buy a Car Online — from Start to Finish

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

Visiting a car dealership lot can sometimes feel like walking on a knife-edge. Salespeople could pressure you into spur-of-the-moment decisions that could leave you buried up to your eyeballs in debt for the next several years.

Buying a car online can be a much smoother and well-informed experience compared with traditional car buying, but it does require a bit more legwork on your part. Before you dive in, you’ll want to make sure you’re well-informed on how to buy a car online.

Part I: Traditional vs. online car buying

Curious about buying a car online but unsure of how the experience compares to traditional car buying? The processes are similar in a lot of ways, but skipping the dealership can actually give you a leg up as a buyer.

The troubles of traditional car buying

Before the internet revolutionized everything, there really was only one way most people bought a car: They’d visit car lots, find a car they liked and then sit down with a car salesman to work out an agreement. This led to the dreaded negotiation process.

“There’s all this back-and-forth and, ‘Oh, I’ve got to go talk to my manager,’” said Jack Gillis, executive director of the Consumer Federation of America and author of “The Car Book.” “Well, the guy goes back and has a cup of coffee and lets you sit there and steam for a while, then he comes back and gives you some song and dance about why they can or can’t do something.”

Because most people treated car dealerships as one-stop shops for buying a car, they often wouldn’t be informed about the full range of cars, financing options or trade-in choices available to them. Without these bargaining chips, consumers are at the mercy of the car salesmen.

How buying a car online empowers the buyer

With online car buying, it’s possible to complete every phase of the car-buying experience — from finding the right car to negotiating — entirely online.

Perhaps the biggest benefit of buying a car online is that it puts you in greater control of the car-buying process and no longer at the mercy of the salesmen at one dealership. You can expand your options for cars, financing and trade-ins, and then use your findings to negotiate for your best price possible.

“The whole digital part really is empowering for the buyer because there’s so much information that you can use to make an informed decision,” said Matt DeLorenzo, managing editor of KelleyBlueBook.com.

The downside of all this power is that it requires a bit more legwork on your part to bring all the pieces together. On the bright side, doing your homework can save you thousands of dollars and ensure you get the best car possible.

Part II: 7 steps to buying cars online

Step 1. Choose the right car

It’s important to choose a type of car that will best fit your needs. Do you want a fuel-efficient vehicle for short commutes? Do you need to haul around large amounts of cargo? Do you have a large family or a small one? Thinking about questions like these can help you zero in on what kind of body style (truck? SUV? compact car?) will suit your needs.

Once you narrow down a body style, it’s time to research what specific makes and models of cars might be best for you. Good research websites include Edmunds, Car and Driver and Kelley Blue Book.

If you’re buying a new car, you might be offered certain options and add-ons from the dealer, such as VIN window etching or rust-proofing. Before you go signing up for every option offered (and sign away your whole paycheck in the process), it’s important to research these options. You can face big markups and can easily get these add-ons yourself if you decide you need them down the road.

Step 2. Determine the price you want to pay

Next up is determining how much car you can actually afford. The more conservative rule of thumb is the 20/4/10 rule, but if that’s not possible for your budget, make a concerted effort to try to meet the 10/5/20 rule. Here’s how the two rules break down:

Rules of Thumb for Transportation Costs
20/4/10 Rule10/5/20 Rule
Minimum down paymentMake a minimum 20% down paymentMake a minimum 10% down payment
Loan termFinance for no more than four yearsFinance for no more than five years
Monthly transportation expenses, including insurance, gas, etc.Total expenses shouldn’t exceed 10% of your monthly incomeTotal expenses shouldn’t exceed 20% of your monthly income

These rules could help you set a cap on your car-shopping budget. For example, if you have $3,000 saved, it might be a good idea to avoid buying a car for more than $15,000 ($15,000 x 0.20 down = $3,000). From there, you can assess any financing offers to make sure that you’re not spending more than 10% of your income on the car and that your financing doesn’t stretch beyond the four-year mark.

You can narrow your car search down even further using these budget caps. If a car’s MSRP is far outside of your budget, weed it out of consideration. You can use websites like Kelley Blue Book or the National Automobile Dealers Association to research the current prices for new and used cars in your area.

Step 3. Get approved for financing online

It’s important to get preapproved for an auto loan before you actually go shopping. Getting preapproved for a loan does not mean you have to take the financing; rather, it helps you stay within your budget and gives you a bargaining chip in negotiations.

You can easily get preapproved for an auto loan online through websites like LendingTree, which is the parent company of MagnifyMoney. Using our auto loan marketplace, you can fill out one online form and potentially get offers from several auto lenders at once, depending on your creditworthiness. It’s also a good idea to check around with local banks and credit unions, which may offer deals locally.

You’ll generally need a high credit score to qualify for the best auto financing offers. If you don’t have a high credit score, you will likely be preapproved for a loan, but it may come with higher interest rates. If you’re outright denied for a preapproved loan, you may need to consider shopping elsewhere or waiting a little while so you can take steps to increase your credit score.

If you are qualified for preapproval, the lender will give you a preapproval letter. Make sure to keep a copy of this letter, and bring it with you when it comes time to negotiate a price on the car you’ve chosen.

Step 4. Choose the right source

Once you get to this point in the process, it’s time to cast your net and see what cars are out there.

One place to look is AutoTempest, a comprehensive website that searches several websites, including Craigslist, for specific makes and models. If you’re looking for one particular brand, don’t overlook your local dealership’s website. Other possible websites to go to scope out cars include:

We also made a list of the best online car-buying sites that you can check out to help you in your search.

With the power of the internet, the whole world (or at least the whole country) can be your virtual car lot. If you’re able to travel to pick up your new vehicle, you might be able to save a trunkful of cash by broadening your search.

For example, if you live in a snowy climate and are looking for an all-wheel drive car, you might try looking in a warmer area. “There might be better incentives on all-wheel drive cars in, say, Arizona than in the Northeast where they got a lot of snow,” said DeLorenzo.

Step 5. Get quotes

Once you’ve identified your targets, the next step is to find out how much they’ll cost. You’ll negotiate your final price in the next step, but this step sets a starting point.

Contact the dealership directly and ask for a quote for each vehicle you’re interested in. It’s important to do this as the price may have changed or the vehicle may have been sold. But perhaps the main reason this is crucial to do is so dealers will be motivated to give you a better price than what’s online, and it puts the starting line for negotiations much closer to the finish line.

Email or call the dealership and ask for their internet sales manager, as this is the person you’ll work with through the negotiation process. Give them the VIN or stock number of the vehicle you’re interested in and ask for a quote. Then, ask them to email it to you so you have it in writing.

It sometimes can be difficult to get a dealership to quote a price, but it’s important to insist that dealers give a price estimate for the make, model and year. If quote collecting isn’t your thing, you also can hire a service to do this for you, such as CarBargains. For $250 and a detailed description of what you’re looking for, CarBargains will collect at least five different dealership quotes for you.

Collecting these quotes gives you the bargaining power you need to negotiate prices down as low as possible in the next step.

Step 6. Time to negotiate

Ah, the dreaded negotiation. Since you’ve already gone through all of the steps to be an informed consumer, negotiating your price will be a much smoother process. Specifically, you’ll be negotiating the price of three separate items: vehicle price, financing cost and trade-in value.

Vehicle price

This is the most important piece. You can — and should — present the offers you’ve received in the prior step. Did someone offer $12,500? Show that emailed quote to another dealer and ask if they can lower their price to $12,000. Car dealerships are usually very easy to negotiate with online.

“If you think about it from an efficiency point of view, an online salesperson can be working more deals at one time than somebody on the floor who’s physically with one person,” said DeLorenzo. “Sometimes it’s actually more cost-effective for the dealer to sell it through or do a lot of the negotiation online.”

Car salespeople will often try to upsell you on add-ons when negotiating the price for a car. “They may say, ‘Well this will only cost you 10 bucks more a month.’ Well, yeah, and that’s $120 over a year. Over five years that’s $600, $700. You can’t let bells and whistles cloud your judgment,” said DeLorenzo.

Stick to the basic total numbers, not the monthly payment, and don’t let yourself get distracted.

Trade-in price

Chances are that you already have a car that you want to trade in to help defray your costs. Most dealerships will accept trade-ins, but be warned: You will probably get much less than if you shop around for trade-in prices on your own.

Websites like Kelley Blue Book allow you to find a fair trade-in price for your vehicle. In addition, you can use a tool on Kelley Blue Book’s website called “Instant Cash Offer” to get bids from dealers on your car.

“The beauty of having something like that is that it sets a floor for what your car is worth,” said DeLorenzo. “You’ll know you’ll get at least that much in trade or in an outright purchase, and that’s important leverage to have when you’re negotiating a new car deal.”

Additionally, you can try selling your car yourself through sites like Craigslist. Generally, going this route will net you your best price for your old car, although this may take more time and energy than simply driving onto a car lot with your old car and driving off with a new one. Here’s more on what to know before you trade in your car.

Financing cost

The final piece of the puzzle is how you’re going to pay for your new car. Since you’ve already taken the time to be preapproved for an auto loan, this step should be simple.

Show the dealer your preapproval letter and ask them if they can beat it. If so, great. If not, then you know you’ve already secured the best auto financing deal possible.

Step 7. Making the final purchase online

Once you’ve lined up the three pieces of the puzzle — the lowest car price, the lowest financing price and the highest trade-in value — it’s time to make your decision. Most dealerships still require you to physically come in to complete the final paperwork signing. However, that’s beginning to change.

“Savvy dealers are beginning to digitize as much of that kind of paperwork [as possible], to just make it easier to buy a car from them,” said DeLorenzo. “It works out better for them, too. I mean, if they’re able to get you in and out quicker, they can sell more cars quicker.”

But as far as completing the entire purchase process online? “I think there are dealers who are willing to do that,” DeLorenzo said. “The question is, do you want to do that?”

For now, you’ll likely still need to do some of the physical aspects of buying a car, such as taking it for a test-drive, in person. Perhaps someone will invent a virtual test-drive machine in the future!

Part III: Staying safe while shopping for cars online

Luckily, outright scams aren’t too common when it comes to buying cars online, according to Gillis. Many car dealers are subject to consumer-friendly regulation by the Federal Trade Commission. Still, there are some things to be aware of when shopping for cars online.

Beware the bait-and-switch

One situation that Gillis has seen involves a bait-and-switch technique when consumers arrive at the dealership to complete the purchase after negotiating everything online.

“You’ve got it all squared away. You get to the dealership to close the deal, and all of a sudden, ‘Oh my gosh. I can’t believe it, someone just came in and bought that car, but we have another one here that actually has a few better features on it, and it’s just the color you wanted, and it’s only gonna cost you $20 more per month,’” Gillis said.

If this happens to you, be prepared to walk away from the dealership as they’re likely just trying to weasel more money out of you.

Get an inspection from an independent mechanic

If you’re buying a used car, whether at a dealership or from someone you found on Craigslist, you should absolutely get an inspection first. Everyone has heard horror stories about buying a lemon (or worse, being the person who bought the faulty car). The seller will surely tell you that the car is in perfect shape, but how do you really know? Getting an auto inspection by an independent mechanic is perhaps one of the best ways to protect yourself.

If you’re unable to take the car to your own mechanic, DeLorenzo recommends a service from AiM Certify. For as little as $129, you can book an independent mechanic anywhere in the country to travel to the dealership and perform an inspection for you. You’ll get back a full mechanical report complete with actual photos of the car.

Try before you buy

If you’re not happy with your choice, you may have wasted tens of thousands of dollars. That’s why it’s crucial to take a test drive before you commit.

“Most of the problems that consumers end up not liking about their vehicles could have been determined in a test-drive,” said Gillis. “For example, it’s hard to park, or the back seat really isn’t that comfortable, or the trunk really doesn’t hold that much, or when changing lanes, there’s a big blind spot in the back.”

Jenn Jones contributed to this article.

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Reviewed By:Christina Gonzalez

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review: PenFed Auto Loans

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If you’re looking to buy a car and need financing, the dealership isn’t your only option. Credit unions can be an attractive alternative as they’re motivated to set up good deals for their members. Pentagon Federal Credit Union is a perfect example as PenFed auto loan rates start as low as 2.14% for new vehicles and 2.99% for used. Rates dip even lower for qualified borrowers who purchase a vehicle through its car-buying service.

PenFed auto loan details

PenFed defines a new auto loan as one where you are the original owner and the vehicle is a 2018, 2019 or 2020 model. Used car loans are available for all model years up to 60 months while 72-month loans are available for autos from model years 2015 through 2020.

Refinance loans. If you have an existing auto loan, you could also refinance to access the same PenFed rates. The only difference is that you’re only allowed to finance up to 100% of the vehicle’s value, not 110% like a new or used auto loan.

Payment Saver loan. Finally, PenFed offers a Payment Saver program in which you take out a PenFed auto loan with a smaller monthly payment in exchange for a higher interest rate. At the end of this loan, you will still have an outstanding balloon payment which you will then need to pay off, refinance to another loan or cover by selling/trading in the vehicle.

 

New auto loan

Used auto loan

Payment Saver

APR range

2.14% to 17.99%

2.99% to 17.99%

Starts at 2.99% for new auto loans and 3.74% for used.

Loan amounts

$500 to $100,000

$500 to $100,000

$10,000 to $100,000

Loan terms

36 to 84 months

36 to 72 months

24 to 60 months

Credit requirements

Minimum credit score of 610

Minimum credit score of 610

Minimum credit score of 610

Maximum LTV

110%

110%

N/A

The fine print

At PenFed, the best rates and flexible loan amounts are available on the shortest terms. For example, if you want a 36-month PenFed new auto loan, the minimum amount can be $500 and the lowest possible APR is 2.49%. But if you want a 72-month new auto loan, the minimum amount must be at least $15,000 with a lowest possible APR of 3.99%.

Loan to value ratio: For all of its auto loans except for a refinance, PenFed Credit Union offers 110% LTV financing, meaning you can borrow more than the actual value of the vehicle to cover costs like tags, taxes and extended warranties. But be careful when borrowing more than your car is worth — you don’t want to become upside down in your auto loan.

PenFed Credit Union does not have geographic restrictions on its auto loans, which are available nationwide. Its Payment Saver program is not available for Smart cars, trucks and SUVs. PenFed Credit Union also doesn’t offer financing for other vehicles like boats, RVs or motorcycles.

PenFed’s car-buying service

You could shop for an auto loan and the vehicle itself through PenFed Credit Union’s car-buying service. Through its website, you can search an online database of both new and used vehicles from dealers certified by car-buying firm TrueCar.

To use this program:

  1. First, search local listings online.
  2. If you find a vehicle you like, fill out a contact form to get in touch with a certified dealer.
  3. Set up your PenFed Credit Union financing.
  4. Test-drive the car at the dealership and, if you’re happy with it, sign the paperwork to complete the purchase.
  5. Report your purchase to take advantage of additional benefits.

Pros and cons of PenFed’s car-buying service

PenFed says members who use this service save an average $3,350 off a new car’s MSRP. But the biggest advantage might be a lower APR: as low as 1.49% for PenFed’s new auto loan and 1.99% for its used auto loan, a full 1% lower than its standard rates. You would also be eligible for additional benefits including $1,000 to cover insurance deductibles if you’re in an accident.

Downsides are that you’re restricted to TrueCar’s listings at specific dealers that do not guarantee that you’ll receive the lowest possible price. It’s possible you could get a lower price on your own at dealers of your choosing. But if you’ve done your research on your car, compare it with the price you receive through PenFed Credit Union.

How to apply for an auto loan with PenFed

Since PenFed is a credit union, you need to be a member to use its loans. However, you can apply for a new or used auto loan first to find out what they’d offer before you join. For the refinance and the Payment Saver program, you need to be a member to receive an offer, but you can sign up at the same time as your loan application.

Here’s how it works: Apply using PenFed’s online application. The application will ask for:

  • Amount you’re trying to borrow
  • Your income
  • Your outstanding debts
  • Your Social Security number (to pull up your credit score)
  • Your address and other contact information.

Preapproval: If you’ve been a member of PenFed Credit Union for more than 90 days, you may be eligible for a preapproved auto loan. Getting preapproved let’s you know how much you could borrow before you start looking at vehicles. Once you submit your application, PenFed may be able to make an instant decision but it can also take up to 48 hours to review everything.

To help you plan for your loan, you could use the PenFed auto loan calculator to punch in information about your loan: amount, down payment, interest rate and your trade-in value to arrive at your approximate monthly payment and how much you’d owe in interest. You could also use our auto loan affordability calculator to start with your preferred monthly payment and work backward to a car price that fits your budget.

Can anyone join PenFed Credit Union?

Because PenFed Credit Union has an open national membership charter, anyone can join from anywhere in the country.

When you sign up for Pentagon Federal Credit Union membership, the online application will present you with a number of options for how you can qualify:

  • Past or present military service
  • If you work or are part of a list of accepted employers and organizations
  • You live in one of PenFed’s covered locations
  • You have a family member who is part of PenFed Credit Union

If one of the above doesn’t apply to you, you can make a $15 donation to join Voices for America’s Troops or a $17 donation to join the National Military Family Association to qualify for PenFed membership.

As part of setting up Pentagon Federal Credit Union membership, you’ll need to open one of its savings/share accounts with a balance of at least $5. It’s a free account that does not charge a monthly maintenance fee. This applies even if you just want to take out a loan. You also may need to provide your driver’s license, Social Security card and a recent utility bill so PenFed can verify your identity.

Pros and cons of financing through PenFed

PenFed auto loans can go as low as 2.14%, even 1.49% if you use its auto-buying service. That’s highly competitive even by credit union standards. However, you need excellent credit to qualify for its best rates. PenFed’s minimum loan term is 36 months for a new or used auto loan — you can’t take a shorter loan than that.

Pros

Competitive interest rates – PenFed rates go as low as 2.14% for new auto loans, well below the average auto loan rate of 5.66% for borrowers with the best credit.

Better deals through its auto-buying service – If you use the PenFed car-buying service, not only could you save money on your vehicle purchase, you could also qualify for a substantial discount on your auto loan APR.

Easy online application – There’s no application fee and you can apply for PenFed auto loans online. For its new and used auto loans, you can also apply without being a credit union member and only join if you like its offer.

110% LTV – PenFed auto loans can go up to 110% of the vehicle value, so you can borrow extra to cover other costs like tags and taxes.

Cons

Tougher credit score requirements – PenFed Credit Union only accepts people with a minimum credit score of 610 for its auto loans, and you may need over 800 to get the best rates.

Membership required – If you aren’t a PenFed Credit Union member, you’ll need to join and open one of its savings accounts before you can take out an auto loan. This may require donating to charity if you can’t qualify for another reason like your military service.

Limited online/phone support – There is no live chat option online and the phone system can be a bit tricky for non-members. We were eventually able to get to a live person, but it took several attempts.

PenFed vs. Navy Federal Credit Union

Navy Federal Credit Union is a close competitor to PenFed as they both have strong ties to military servicemembers and their families. When it comes to auto loans, Navy Federal Credit Union is another excellent choice. Its starting APRs and loan terms are nearly identical to PenFed and it also offers a car-buying program to help you find good deals.

Pros of Navy Federal: One key difference is that Navy Federal Credit Union has a wider range of vehicle loans. Besides auto loans, it offers motorcycle, boat and RV loans while these are not available at PenFed.

Cons of Navy Federal: On the other hand, qualifying for membership at Navy Federal Credit Union is more difficult. You are only eligible based on your past/present military service, because you work for the DOD or because a relative is a member. PenFed does not have these restrictions and everyone can use its products. Also, Navy Federal’s car-buying service does not offer a discount on its loans, like the one at PenFed.

If you are eligible for both credit unions, it may be worthwhile applying for an auto loan with each one. Neither charges an application fee so there’s no cost to see who would come up with the best deal for your financing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.