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How to Get a Car Loan With Bad Credit in 2017

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Part I: Auto Loan Options for Bad Credit

Shopping for vehicles with bad credit can be like walking through a minefield. It is possible to get across safely and into the car of your dreams, but it will require careful thought and strategy if you want to avoid overpriced lemons, crooked loans and outright fraud.

In this guide, we explain how to find the best deal on an auto loan if you have bad credit. We dig into the pros and cons of financing through credit unions, banks, personal loans and dealers. Finally, we bring to light the biggest auto financing scams and show you how to avoid them.

We geared this guide toward young adults with a short credit history; immigrants who have not established credit; anyone with a history of late payments, credit collections and bankruptcy; and someone who has suffered from identity theft, divorce or other negative credit events.

How bad credit impacts your cost of borrowing

When you have poor credit, it will be harder for you to find affordable auto financing but not impossible. You should be prepared to face higher interest rates, for one thing, and you may be required to have a co-signer or put down a larger down payment in order to get approved.

Most people think of their credit score as a single number, but when it comes to auto lending, that’s not entirely true. Most auto lenders care a lot more about your history with auto loans than about any other part of your credit history.

A good credit score isn’t just about interest rates. Bad credit may mean that you’re ineligible for a loan at any interest rate. The single most important factor in getting approved for an auto loan is whether or not you’ve had a repossession in the last year. People with recent repossessions will struggle to find a reputable lender. During bankruptcy proceedings, you may struggle to find financing.

However, shortly after completing bankruptcy, you’re likely to get flooded with auto loan offers. Lenders know that you can’t file bankruptcy for another eight years, so they may consider you a better credit risk.

If you have bad credit, you might find a lender to approve your loan, but you’ll likely pay a high interest rate. Just how much does bad interest cost? A borrower with a credit score below 500 will expect to pay $9,404 for a $16,000, 61-month car loan, according to interest rate estimates from Experian. That’s 4.1 times the interest that a prime borrower can expect.

People with bad credit face dramatically higher interest rates than borrowers with good credit. According to the Experian State of the Automotive Finance Market, used car borrowers with credit scores between 601 and 660 had average interest rates of 9.88% compared with the 16.48% rate faced by borrowers with scores between 501 and 600.

With such high interest rates, it’s usually best to avoid taking out an auto loan until you have decent credit. However, if you finance a car with bad credit, try to follow these rules:

  • Use a significant down payment. We recommend putting down at least 20 percent on any vehicle purchase. A larger down payment not only results in a smaller loan, but you’ll pay less in interest over time. Additionally, cars depreciate in value rapidly once you purchase them. By putting down 20 percent, you’re making sure you’re only financing what the car is actually worth.
  • Do your research first. Consult the Kelley Blue Book to determine the vehicle’s value, and have the vehicle inspected by a trusted mechanic before you buy it.
  • Avoid loan terms that are longer than four years. The average subprime borrower purchasing a used vehicle takes out a loan for over five years (61.6 months), according to Experian. Long loans may mean you’ll pay more in interest and possibly face costly repairs before you finish paying off the car.
  • Borrow only what you can afford to pay back. A good rule of thumb to follow is that the total cost of your monthly car expenses shouldn’t be more than 10 percent of your gross monthly income
  • Demand fair terms. If you have bad credit, you can’t expect a great interest rate on your loan, but you can expect fair terms. Don’t accept a loan with prepayment penalties or mandatory binding arbitration clauses.

These rules can help you protect yourself against predatory lenders and unaffordable loans.

Credit union auto loans for bad credit

The fastest growing issuers of auto loans are credit unions. According to Experian, at the start of 2015, credit unions held just $215 billion in open auto loans. Today they hold $286 billion.

Navy Federal Credit Union and USAA are two national credit unions that will work with people who have bad credit. Please note, neither credit union guarantees loan approval. However, they both offer courses to help you improve your credit, and they have car-buying programs to help you find a vehicle in your budget.

Navy Federal CU Navy Federal Credit Union

  • Down payment required: None
  • Loan terms: 12 to 96 months on new vehicles; up to 72 months for used vehicles
  • Credit score requirements: No minimum score. More likely to be approved if you have a low debt-to-income ratio and few major derogatory marks (such as collections or repossessions).
  • Full review

Navy Federal Credit Union is open to members of any branch of the U.S. military, civilian and contractor personnel, veterans and their family members. They do not have specific credit minimums for their loans, but they consider debt-to-income ratios and credit history.Unlike most banks, NFCU will help you if you have negative equity in a vehicle. They lend up to 125 percent of the new vehicle’s value. Navy Federal Credit Union approves borrowers for both private party and dealership loans, and they have free online courses to help you make the best buying decisions.

USAA Auto Loan USAA

  • Auto loan APR: 3.09% to 0.00%
  • Down payment required: Varies based on credit history and income
  • Loan terms: 12 to 72 months for borrowers with poor credit
  • Credit score requirements: Not available

USAA is open to members of any branch of the U.S. military and their family members. USAA determines loan eligibility based off of your credit history, your income, and your other debt obligations. You may not qualify for a loan if you have a credit score below the mid 500s, a recent repossession, or other derogatory marks.USAA does not always require a down payment for a vehicle purchase, but they advise putting down at least 15 percent on vehicle purchases.

Banks and subprime auto financing companies

It’s getting much tougher for people with poor credit to borrow high-interest, high-risk subprime loans, as many of the largest banks in the U.S. have started to shy away from the product.

Ally Financial, the nation’s largest auto lender, limited their subprime lending to just 11.6 percent of their total lending in 2017. In 2015, the nation’s third largest auto lender, Wells Fargo, announced their intentions to limit subprime auto lending to less than 10 percent of their portfolio.Of the five largest auto lenders in the U.S., only Capital One continues pursuing the subprime auto market. They lend nearly one-third (31%) of their portfolio to consumers with credit scores less than 620.

You can gain pre-approval before you start shopping for a vehicle. This is the best way to shop for an auto loan if you have bad credit. You do not want to pursue auto financing from the scam artists at a dealership.

Below, are auto financing companies and banks that will issue loans directly to people with poor credit.

SpringboardAuto SpringboardAuto.com

  • Loan size: $7,500 - $45,000
  • APR: 8.29% to 23.00%
  • Loan terms: 12 to 72 months
  • Down payment required: Minimum $250
  • Credit score required: 500
  • Vehicle requirements: 2009 or newer, mileage less than 125,000

SpringboardAuto.com is a direct-to-consumer, online auto lending platform. SpringboardAuto.com specializes in loans to people with imperfect credit histories. SpringboardAuto.com uses a soft credit inquiry to determine your loan eligibility. A soft inquiry allows you to shop for a vehicle loan without hurting your credit.

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Road Loans RoadLoans.com

  • Loan size: $5,000+
  • APR: 3.19% to 27.99%
  • Loan terms: 12 to 84   months
  • Down payment required: Dependent on multiple credit factors.
  • Credit score requirement: There is not a minimum score required, however applicants are required to complete a credit application. Credit score is not the sole factor, but it plays a key role in determining approval and loan terms.
  • Income requirement: $1,800 monthly minimum income

RoadLoans.com is a company owned by subprime auto lending giant Santander. Santander has suffered from more than its fair share of criticism in the subprime auto lending market. According to a March report by Moody’s Investors Service, the bank failed to verify incomes of 8 percent of borrowers whose loans it later bundled up into bonds and sold to investors. From a consumer’s perspective, it’s important that lenders verify your income before approving you for a loan because it’s never a good idea to borrow more money than you can reasonably afford to repay.

The scandals make this a reluctant recommendation, but the loans offered by RoadLoans.com are direct to consumer. That means you’ll see better rates and fair terms on the loans.

Capital One Capital One

  • Loan size: $4,000 - $40,000
  • APR: 3.39%+
  • Loan terms: 24 to 72 months
  • Vehicle requirements: Must work with one of 12,000 nationwide dealerships. Vehicle must be a 2005 model or newer with less than 120,000 miles.
  • Down payment requirement: Must have a 10 percent down payment
  • Income requirement: $1,800 per month
  • Full review

Of the five largest bank lenders, only Capital One continues to expand their subprime auto lending operations. Capital One uses a soft credit pull to help you understand how much you may qualify for. Once you qualify for a loan, Capital One issues a “blank check,” which you can fill out at one of over 12,000 nationwide dealerships.

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AutoPay Autopay.com

  • Loan size: $2,500 - $100,000
  • APR: 1.99% to 25.00%
  • Loan terms: 24 to 84 months
  • Credit score requirements: 600 minimum score
  • Income requirements: $2,000 month income

Autopay.com is an online lender that specializes in auto lending for people with fair credit. You need a credit score of at least 600 and an income of at least $2,000 a month to qualify for a loan on Autopay.com.

How to compare auto loan rates

Once you’re serious about car shopping, take some time to get the best auto financing. When you apply for an auto loan, you’ll usually see a “hard credit inquiry” on your credit report. This will drag your credit score down by a few points. To limit the damage of hard credit inquiries, do all your comparison shopping inside a 30-day window. Any auto loan applications that you submit within 30 days will count as just one hard credit inquiry on your score.

Get pre-approved for an auto loan

Once you know your numbers, you might think it’s time to start car shopping, but that isn’t quite right. It’s important to get pre-approved for an auto loan first.

Loan pre-approval allows you to walk into a car-buying situation knowing that you’re looking for price and quality, not financing. It frees you to focus on the final price of the vehicle and the value of your trade-in. Even more important, pre-approval can keep you from getting scammed by shady dealers.

If you’re planning to buy from a private-party seller, pre-approval is even more important. Most individuals won’t wait around for weeks or months for financing to come through. Without a pre-approval, you’re unlikely to get the deal.

Using personal loans for auto financing

If you’ve had a car repossessed in the last few years, you may struggle to qualify for any auto loans. But you may still qualify for a personal loan. This is one of the few situations where a personal loan makes sense to finance a car.

Personal loans also make sense if you expect to pay off the loan in less than a year. For example, you may want to take out a loan as a “bridge loan” while you work out the private party sale of a vehicle. If you’re underwater on a vehicle, you may need a personal loan to help you pay off your original loan upon the sale of your older vehicle.

Most people using personal loans will want to look for an unsecured personal loan. Unsecured means that you don’t have an asset to back up the value of the loan. Interest rates on unsecured personal loans tend be higher than those of auto loans. If you have bad credit, the interest rates can be as high as 36%, according to the MagnifyMoney comparison tool.

If you own an insured vehicle, you may consider a secured personal loan. These also have high interest rates, but those are somewhat tempered by the collateral. Of course, if you sell your vehicle or otherwise ruin it, you have to repair the vehicle or pay back the loan right away.

These are some of the best options for personal loans if you have bad credit:

Avant personal loanAvant

  • Amount: up to $35,000.
  • APR: 9.95% to 35.99%
  • Loan terms: 24 to 60 months
  • Upfront Fee: Up to 4.75%
  • Full review

Avant specializes in unsecured personal loans for people with OK to bad credit. The interest rates are high, but these are one option for people with bad credit. We recommend these loans if you’re borrowing a small amount or for a short time and you cannot qualify for better terms.

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Avant branded credit products are issued by WebBank, member FDIC.

OneMain personal loan OneMain Financial

  • Loan size: $1,500 to $30,000
  • APR: 16.05% to 35.99%
  • Loan requirements: May require a vehicle as collateral or a co-signer (or both)
  • Full review

OneMain Financial specializes in secured loans for people with bad credit. The loans carry super-high interest rates, but they may be the best rates available if you have bad credit. When you apply for a loan through OneMain Financial, you must complete the loan in a local bank branch.

Best egg personal loan Best Egg

  • Amount: Up to $35,000
  • APR: 5.99% to 29.99%
  • Term: 36 or 60 months
  • Upfront fee: 0.99% - 5.99%
  • Full review

Best Egg is one of our highest rated personal loans for avoiding fine print. If your credit score is at least 700, you could get approved. It is very difficult to get approved below 660.

The truth about dealer financing

Even with the best credit score, dealer financing is rarely a good deal. This is especially true if you buy a vehicle with an in-house loan office that claims, “No Credit, No Problem!”

Used car dealerships only work with a few auto lenders, so they can’t guarantee that you’ll get a great rate. On top of that, some auto financing companies let dealerships mark up the loan and keep the additional interest as a commission.

Even in the best-case scenarios, dealer financing can also get you focused on the wrong numbers. Salespeople will focus on the monthly payment amount rather than the price of the vehicle you’re buying and the value of your trade-in. To get the best possible deal, you want to know the price you’re paying for the vehicle.

Part II: Shopping for Auto Financing With Bad Credit

  • Essential Car-Buying Checklist

  • Check your credit score
  • Compare rates from several lenders and get pre-approved BEFORE going to the dealer
  • Follow the 20/4/10 rule: Put at least 20% down; finance the car for 4 years or less; car payments should be less than 10% of your monthly budget.
  • Check used cars for safety recalls (run the VIN at SaferCar.gov)
  • Have a trusted mechanic inspect the vehicle
  • Check Kelly Blue Book for price comparisons
  • Negotiate the vehicle price
  • Don’t waste your money on extended warranties
  • Buy insurance on your own
  • Complete the sale (at a local DMV if possible)
  • Transfer the title right away

4 numbers to check before you buy a car

If you’ve struggled with credit in the past, or you’re a new borrower, then you need to know your numbers before you shop for a vehicle. Knowing these numbers will help you make a wise purchasing decision.

  • Credit score
    • You can check your credit score for free from a number of websites. The scores you see on the free websites won’t exactly match the scores auto lenders use. They will use FICO® Auto Scores 2, 4, 5, 8, 9, which can be purchased from myFICO.com for $59.85. Don’t like what you see? Don’t hire a shady “credit repair” company. Our ebook will explain how to repair your credit on your own, for free!
  • Interest rates
    • Many banks and credit unions use soft credit inquiries to help you estimate your auto loan interest rates. You can compare rates at Lendingtree.com to see what rates you might qualify for.
  • Your budget
    • We recommend following the 20/4/10 rule: Put at least 20 percent down, finance the car for less than four years, and have a payment of less than 10 percent of your income. You can use the Auto Affordability Calculator to help you determine a budget.
  • Current car’s value
    • If you’re driving a paid-off car, you have an asset that can go a long way in making your new car more affordable. Many dealerships will let you trade in your old vehicle as a down payment on a newer vehicle. Use Kelley Blue Book to negotiate a fair trade in value.

Dealer financing scams and how to avoid them

“No credit? Bad credit? No problem!”

When you shop for credit at a place that advertises, “No Credit? No Problem!” the financiers smell desperation. They may stick you with a bad loan, or they may outright break laws. These are just a few scams you might encounter from dealer financing operations. According to Consumers for Auto Reliability and Safety (CARS) Foundation president, Rosemary Shahan, “In general, buy-here pay-here financing is just overpriced junk. […] We always recommend that people avoid financing at the dealership. There are just too many games that they can play.”

Yo-yo financing

Yo-yo financing is when dealers allow you to sign a contract at one rate, and then unilaterally change the terms of the contract a few weeks after you’ve taken home the vehicle. They usually claim that the “financing fell through” and you need to sign a new contract at a higher interest rate. This is an illegal practice, but it may require costly litigation to prove.

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

Mandatory binding arbitration clauses

Most dealer financing includes forced arbitration clauses. In this clause, customers waive the right to a jury trial and must settle disputes in private arbitration. Dealers can delay arbitration or fix outcomes by paying private companies.

Shahan claims, “When you go to arbitration, you’re almost always going to lose. The companies have them in their pockets.”

Overpriced extras

Some loan officers stuff contracts with overpriced extras with dubious value. For example, they may include service contracts, extended warranties and unclear fees. When you do the math on these products, they’re rarely worth the money.

If you plan to take out a loan for more than your car is worth, you may have to buy Guaranteed Auto Protection (GAP) Insurance. This insurance covers the difference between the amount of your loan and the value of your car. It helps you pay off your loan if your car gets totaled. Generally, you’ll want to buy this (and all other car insurance) on your own.

Undervalued trade-ins

Your old vehicle is an asset, and you should get close to Kelley Blue Book value for it. Some shady dealers will value your vehicle at pennies on the dollar. Because of a low valuation, you may be stuck financing a larger amount. A private sale will always yield the biggest bang for your buck, but that might be inconvenient for you. Even so, you need to negotiate for a fair trade in value.

Focus on the monthly payments

Salespeople often focus on monthly payments rather than true affordability. Because of that, you may lose track of the price you’re actually paying for a vehicle. When buying a vehicle, getting a loan pre-approval will help you focus on the price rather than the monthly payment.

Selling mechanically unsound vehicles

Some used car dealers sell vehicles that don’t work to unsuspecting customers. Even worse, some dealerships sell unsafe vehicles that are branded as “certified pre-owned.” Used vehicles can be sold as certified pre-owned despite the fact that they have unrepaired safety recalls.

The Federal Trade Commission requires banks to check for unrecalled safety recalls, but buy-here pay-here lots don’t have to. Unless you check for safety recalls yourself, you might buy a vehicle that the manufacturer has called unsafe.

In general, once you’ve purchased the vehicle, you can’t return it, and you have to pay for repairs on your own. Before you buy a used vehicle, have a trusted mechanic inspect it. Additionally, check the VIN number at SaferCar.gov. This database will tell you if the car you want to buy has unrepaired safety recalls.

Title scams

Some dealers fail to transfer a title within a timely manner. That opens you up to credit and legal risks. Car dealers should explain exactly when you should expect to see the title. Ideally, you can walk out of a dealership with an assigned title or certificate of transfer.

Know your rights

Car buyers do not have many ways to protect themselves from shady dealers or financiers, but if you know your rights, you can protect yourself from the most damaging problems.

  • Title rights. Every state has different rules surrounding title transfers, but in every state you have the right to a title when you purchase a vehicle. You should know exactly when to expect the title before you pay for a vehicle. When you buy from a private party, you should expect to transfer the title immediately regardless of state laws.
  • Insurance rights. A bank may legally require you to purchase vehicle insurance. However, you have the right to purchase the insurance on your own. Take advantage of this right; you’ll save a ton of money.
  • Refuse financing. Despite high-pressure sales tactics, you don’t have to take out financing from a dealer. You can take out a loan from a bank or credit union instead.
  • Contract rights. If you’ve signed a valid contract, a financing company cannot change the terms. They cannot force you to sign a new contract with less favorable terms.

Don’t work with dealers that don’t respect these rights. If you’re caught with a company that does not recognize your rights, complain to the Consumer Financial Protection Bureau right away. The CFPB helps customers connect directly with financial institutions and responds to issues within 15 days.

Since vehicle buyers don’t have many “inherent” consumer protection rights, you protect yourself.

Only work with private parties or dealers that allow you to do the following:

  • Inspect used vehicles
    • A trusted mechanic can help you evaluate the mechanical soundness of a vehicle. Most people cannot tell a lemon from a peach, and they need the help of a mechanic to determine the value of a vehicle.
  • Run the VIN through SaferCar.gov
    • Don’t buy a car that has an unrepaired safety recall. These vehicles are dangerous. If a vehicle has a scratched-out VIN, don’t buy it. It’s too big of a risk.
      Avoid mandatory binding arbitration
  • Avoid mandatory binding arbitration
    • Most loans include a jury waiver clause or an arbitration clause. These clauses keep costs down for the bank, but the clauses are nonbinding. That means you have the right to appeal if you believe the bank or credit union committed fraud. Dealerships and dealer financing often require mandatory binding arbitration. That means you can’t appeal even if the dealer defrauded you with an unsound vehicle or an unclear title or other problems.
  • Pay before you drive away
    • A salesperson should not push you to take home a vehicle before you’ve paid for it. When they do that, they are almost certainly going to stick you with a higher vehicle price, or worse financing terms. Pay for your car first, then drive it away

Understanding your auto loan contract

  • Mandatory binding arbitration – This means you cannot sue your financing company. Instead, all disputes are resolved through a private arbitration company paid for by the dealer. DO NOT work with companies that require mandatory binding arbitration.
  • APR – This is the effective interest rate that you’ll pay on your loan.
  • Dealer preparation fees – Unless a dealer has provided custom preparations for you, this is a bogus fee designed for the dealer to make extra money.
  • Origination fee – This is the fee that the bank charges to originate the loan. It’s usually baked into the cost of the loan.
  • GAP insurance – Guaranteed Auto Protection Insurance covers the difference between the value of your vehicle and the value of your loan. You may be required to purchase this if you have negative equity. However, you can buy this insurance on your own.
  • Extended warranties – An extended warranty means that the manufacturer will cover the cost of repairs for a limited time. Most of the time, the warranties cost far more than the repair costs down the road.
  • Loan term – This is the length of time required for you to pay your loan. We recommend keeping loan terms to less than four years.
  • Loan-to-value (LTV) – The LTV expresses the value of your loan relative to the value of your vehicle. We recommend a starting LTV of 80 percent or less. If you have an LTV greater than 100 percent, then you rolled negative equity into the loan.
  • Negative equity – When your vehicle is underwater (you owe more than the vehicle is worth), you have negative equity. It’s possible to buy a new car with negative equity, but we advise against it.
  • Trade-in value – A vehicle trade-in can help you go a long way toward having a 20 percent down payment for your vehicle. During a trade-in, a dealer pays you for your old vehicle. You can almost always get more money by selling your vehicle in the private market, but it’s not very convenient. A dealer will make a trade-in offer that you can either accept or reject. Use Kelley Blue Book to determine whether you’ve received a fair trade-in value for your old vehicle.

Getting a co-signer for an auto loan

People with bad credit stand to gain a lot from having a co-signer on their auto loan. You can expect to qualify for a larger loan with lower interest payments, but asking someone to co-sign an auto loan is no small request.

A co-signer agrees to make your car loan payments if you are unwilling or unable to fulfill your loan obligations. If you skip a loan payment, you ruin your co-signer’s credit. For that reason, we generally discourage most people from becoming a co-signer. However, spouses who share finances may find that co-signing the loan is helpful for the family finances.

A co-signer can help you qualify for lower interest auto loans by providing one of three attributes:

  • Their income may help you meet the minimum requirements for an auto loan.
  • Their credit history is better than yours.
  • They have a lower debt-to-income ratio than you.

If you’re a freelancer or small business owner, a co-signer may also offer the required income stability that puts you into a lower risk category.

When you ask someone to co-sign a loan, remember that they are putting their credit on the line for you. If you don’t think that you can make your loan payments, then you’re putting them at risk. Be careful about the request

How to refinance from a bad credit auto loan

If you’ve taken out a high-interest auto loan, you should be on the lookout for refinancing opportunities. Most people who make on-time auto loan payments and reduce their credit card debt will find their credit score increase over time. If you’re starting with a very bad credit score, you can see over a 100-point improvement within 12 to 18 months of good credit behavior.

Once your credit score is in the mid 600s, take a serious look at refinancing opportunities. People with credit scores between 601 and 660 paid an average of 9.88 percent on used auto loans, a full 6.6 percent lower than the rates paid by people with subprime credit.

Refinancing an auto loan is easy compared to shopping for initial car financing. That’s because the shopping process includes known variables. You know the value of your vehicle and the amount of financing you’ll need. You also know the interest rate you need to beat. If your current vehicle is underwater (you owe more than your car is worth), you may need to bring cash to the table to complete a refinance.

We recommend shopping for loan refinances through our parent company, LendingTree. LendingTree compares dozens of auto refinance offers all at once and shows you the best rates in the market. You can also compare offers to those you might find through myAutoloan.com or SpringboardAuto.com.

Part IV: Car shopping FAQ

Before you declare bankruptcy, you can buy a vehicle up to the motor vehicle exemption amount in your state. Unless the vehicle is expensive, you’ll probably get to keep the car during bankruptcy proceedings. However, your auto loan won’t be discharged in bankruptcy. You need to pay the auto note as required. If you include an auto loan in bankruptcy proceedings, you won’t be allowed to keep the vehicle.

Most people struggle to find auto financing after they’ve declared bankruptcy but before the bankruptcy is discharged. Courts even frown upon buying a car with cash during bankruptcy.

Once your bankruptcy is discharged, you can expect subprime lenders to flood your mailbox with auto loan offers. This is because lenders know you can’t declare bankruptcy for another eight years. However, it’s not necessarily a great time to finance a vehicle. Waiting a year or two for your credit to repair will allow you to finance a vehicle at a much lower interest rate.

If you don’t get approved for an auto loan, ask the bank why they didn’t approve you. Do you have insufficient income? Do you have a recent auto repossession on your credit report? Do you lack credit history? Perhaps your debt-to-income ratio is too high.

Once you know why you didn’t get the loan, you can work on fixing the problem. This guide can teach you how to improve your credit score for free. It’s also important to note that just because one bank didn’t approve your loan, doesn’t mean you can’t get a loan. Our parent company, LendingTree, helps consumers shop for multiple loans all at once. Using LendingTree or other loan aggregation sites can help you find a bank willing to lend to you.

Of course, you could resort to dealer financing, but we don’t recommend it, even as a last resort.

Some banks will not lend to you unless you have a co-signer (also known as a co-applicant). The co-signer agrees to pay for your loan if you stop making payments. If you have low income and bad credit, you’ll probably need a co-signer. However, most others can get around having a co-signer. If possible, we recommend avoiding loans that require a co-signer.

If you currently own a car, you can opt to trade in your vehicle at a dealership. When you trade in your vehicle, the dealership offers credit against the purchase of a newer vehicle. Many people use trade-ins in lieu of down payments.

Dealerships offer less money for a trade-in than you would get in the open market. However, private sales can be complex, and they often take a long time. Because of that, trade-ins can be a win-win for dealers and buyers. The key to a winning trade-in is not getting ripped off. Use Kelley Blue Book to determine your vehicle’s value, and use the KBB value to negotiate a fair trade-in price.

If you owe more than your car is worth, you need to be extra cautious about a trade-in option. When you trade in a vehicle with negative equity, you’re automatically starting your new loan underwater. To stop the cycle of negative equity, you need to find a vehicle that you can pay off in less than four years.

Most people cannot tell the difference between a high-quality and a low-quality used vehicle. We recommend paying a trusted mechanic to inspect the vehicle before you buy it. If a seller won’t let a mechanic inspect the vehicle, you don’t want to buy from them.

You should also personally check the nationwide vehicle registry to be sure a vehicle does not have any unrepaired safety recalls. If the vehicle has unrepaired safety recalls, don’t buy it. It’s not safe to drive.

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Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

When you’re looking to refinance your auto loan, it’s best to check around at multiple lenders for the best rates. Because many lenders today offer online loan options, you can check out the most current offers without putting in the actual legwork of shuffling from bank to bank in person.

See what rates your bank or credit union advertises. Check their websites or call them by phone. Often they’ll give rate discounts when you make automatic payments using one of their checking accounts, which is an easy bar to meet if you’re already a member.

Look at competing lender offers. Whatever your current bank or lender says, compare them to other deals by shopping online. There are dozens of auto loan options out there, but don’t be intimidated. We’ll help you find the best places in this guide. It won’t hurt your credit if you apply to a few different lenders for the same type of loan within 14 days, so don’t let that stop you from applying to one of the best car refinance companies if something looks good.

Look at what your current lender advertises. Not all companies refinance their own loans, but, for those that do, you might be able to refinance with the same company if you qualify for a lower rate or different term.

In this guide, we’ll show you the best places to start shopping for an auto loan refinance, as well as provide tips on how to decide when refinancing is the best move for you.

The best places to shop for an auto loan refinance

To help you choose the right lender for your refinance, we picked out some of the best places to refinance a car online. We started by analyzing more than 450,000 auto refinance applications for 17 lenders submitted through the LendingTree marketplace. We then compared and selected the top four lenders that 1. consumers were choosing most often and 2. offered the lowest average APR.

LendingTree

If you are looking to explore your options, LendingTree is a good starting place. Its online auto lender marketplace lets you compare up to five lenders side by side. You can find lenders that offer loans with APRs starting at 3.99% for New car financing. Motorcycle and RV financing and refinancing are available as well. People of all credit scores may apply. After completing a short online form, you may be able to see real interest rates and find out if you prequalify for any offers instantly.

Pros:

  • LendingTree partners with dozens of financial institutions that compete for your business. Depending on your circumstances, you may be matched with one or more lenders at one time, allowing you to potentially compare several offers and choose the lender that has the best rate and loan terms for you.

Cons:

  • Some of the lenders on LendingTree don’t offer prequalifications. You may or may not be matched to one that does a preapproval, not a prequalification, which would require a credit pull.

A prequalification is a not an automatic approval. Some auto lenders may not offer a prequalification at all and they may require you to submit an application for approval.

How to apply
Go to the LendingTree website and fill out the prequalification form. You’ll need the vehicle information, your information, including contact, loan, employment and income details on hand.

LendingTree
APR

As low as
3.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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.

iLendingDIRECT

Like LendingTree, iLendingDIRECT is an online marketplace where you can potentially be directed to multiple auto lenders. Once you submit an application, the company will shop around for the best loan offers for you. It works with more than 20 financial institutions to offer a wide range of refinancing options, cash back loans, lease buyouts, and more. APRs start at 1.99%. Cars, trucks, motorcycles, boats and RVs can be refinanced; maximum terms and amounts depend on the type of vehicle.

Pros:

  • In some cases, you can skip the first month’s payment to give your wallet a break. If you don’t qualify for refinancing because of poor credit, iLendingDirect will work with you to help you improve your credit so you can qualify.

Cons:

  • Compared to other refinance marketplaces, iLendingDirect has relatively few financial institutions as partners.

To apply
Either call them or fill out a short contact form online and they’ll reply to you. You should have your personal contact information, your vehicle’s year, make and model, and your loan information at hand. With this information, they’ll find the best offers you’re pre qualified for, and you can choose from those which loan you’d like to apply for.

iLendingDIRECT

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on ILendingDIRECT ’s secure website

rateGenius

rateGenius is another online loan marketplace, but this one specifically works with borrowers seeking to refinance. They have a network of 150 lenders around the country. APRs start at 2.99% and loan amounts and maximum and minimum loan terms will vary depending on the type of vehicle.

The original loan term may be shortened or lengthened, though usually rateGenius will match the term of your new refinanced loan to the amount of time left on your original loan.

Pros:

  • The application takes a few minutes and refinance offers are ready within 48 hours.

Cons:

  • rateGenius doesn’t refinance specialty vehicles. It may also charge fees for use of its marketplace. This plan might not be the best fit for you if your income ebbs and flows from month to month.

To apply
Give them a call or fill out an online application form. You should have the following information ready.

  • Current loan information (lien holder name, monthly payment)
  • Vehicle information (make, model and style; VIN; mileage)
  • Employment information (along with a phone number for employment verification)
  • Personal information (SSN, name and contact details)
rategenius

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on Rategenius’s secure website

Autopay

The online loan marketplace AutoPay works to provide refinancing to people at different levels of credit. The minimum loan term is 24 months, while the maximum goes up to 84 months. You have to have at least $5,000 remaining on your loan and no more than $100,000. APRs start at 1.99%.

Pros:

  • This would be one of the best refinancing companies to go with if you have a small amount remaining on your loan or less-than-great credit.

Cons:

  • Depending on its lending partners at the time, Autopay doesn’t refinance specialty vehicles other than motorcycles.

To apply
Visit its website to fill out an online prequalification form. You’ll need your driver’s license, a payoff letter from your current lender, proof of insurance on the vehicle, proof of income and proof of residence. Autopay then works to find the best refinancing offers for which you’re pre-approved, and you can choose which to apply to.

AutoPay

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on AutoPay’s secure website

Benefits of refinancing your auto loan

There are different ways to ditch a bad auto loan, or simply improve your payments to suit your current cash flow, and refinancing is a great way to do it.

Nicolas Ortiz, an auto insurance agent and adjuster at USAA headquarters in San Antonio, Texas, has worked in the industry since 2011 and did a stint as a finance manager at a car dealership for over a year.

“Most people look to refinance in order to lower their payment,” he said, “and you can get other benefits that come with it.”

Here’s more about the benefits of refinancing:

Get a better interest rate. If your credit has improved from when you first signed for the loan, you may qualify for a lower APR. “If you apply to refinance and get a lower APR, not only will your monthly payments be lower, but the overall interest that you pay will be lower, too, if you keep the same term.” Ortiz explained.

Decrease your monthly payment. If you’re strapped for cash, a lower car payment can make a big difference. It could give you some breathing room or prevent a repossession. To get a lower monthly payment, you may refinance with a lower APR, refinance for a longer term or both. Keep in mind your total interest cost may be higher over time when lengthening the term of the loan even if the APR is low.

Decrease your loan term to reduce interest payments. The less time you spend paying back a loan, the less you are likely to pay in interest payments. “To lenders, a greater length of time means a greater amount of risk; greater risk means more interest.” Ortiz told MagnifyMoney. Decreasing your loan term when you refinance will likely decrease your APR, but increase your monthly payment.

If you don’t want to commit to a bigger monthly payment when you refinance, one way to get a similar result is to simply refinance to get a better APR, then make monthly payments that are larger than the required monthly payment. This way you’re going to pay the loan off faster and pay less interest, but you have the option to make the lower required monthly payment if funds are tight.

Double-dip. If you have excellent credit and finance through a manufacturer when buying a new car, you usually have a choice of either getting a low APR, or getting large rebates from the manufacturer. “What you can do is if you qualify for manufacturer financing, take the rebates, sign up with them, and then turn around in a month and refinance with a credit union or bank that will give you a lower APR.” Ortiz said. You get the rebates from signing up with the manufacturer and the low rate from refinancing.

What to watch out for

A refinancing company may offer you add ons like GAP insurance or a warranty, which is also called a vehicle service contract (VSC). Make sure you know exactly how much each costs you and what it does. Don’t just say yes to a monthly payment that includes it.

GAP insurance stands for Guaranteed Asset Protection and covers the debt on the car that your auto insurance company doesn’t. For example, if you get a new car, don’t give a down payment, and crash the car a month later, what you owe on the car will be more than what the car is worth. GAP insurance covers the “gap” between what you owe and what the insurance company pays.

An extended warranty, also called a vehicle service contract (VSC), is an insurance product that will cover certain repairs to the vehicle. It is not your regular car insurance and won’t cover car repairs if you’re in a crash. It will generally cover repairs if something breaks from wear and tear.

For example, if your AC goes out because you live in a hot climate and like to make your car an ice box in the summer, the VSC might cover it. It depends on what type you get. It can be complicated, so, if you’d like one, know that you can negotiate on it and make sure you know what you get for the price you pay.

Questions to ask before you refinance an auto loan

While you can refinance at anytime, some people try to refinance when it may not make much of a difference, or may make a difference in a worse way.

Here are some questions to help you figure out if refinancing your auto loan is right for your situation.

Has your credit changed significantly?
If your credit’s gone up enough to push you into a higher score band (from “fair” to “good” for example), you should definitely check out the best auto refinancing companies to see if you can get a deal. You can use LendingTree’s free credit score tool to check your credit status. Note: LendingTree is the parent company of MagnifyMoney.

If you have a high APR auto loan because of poor credit, has your credit improved?
Many people who have poor credit and little choice but to sign for a high APR auto loan might ask when their credit will improve to the point they’ll be able to refinance at a lower APR — but it really depends on your specific situation. There are steps to successfully improve your credit. Making monthly payments on-time and in-full should help improve your score. Just have patience — lenders typically report payment behavior to the credit bureaus once every 30 days, but that can vary by lender.

If your credit hasn’t increased, or it’s dropped into a lower category, refinancing at this time probably isn’t right for you.

Do you want to add or remove a co-signer?
By refinancing with a new lender, you may have the ability to remove a cosigner from the original loan. However, you may struggle to get approved for refinancing if your credit is poor, you are underwater on your loan (meaning you owe more than the car is worth) or if you have missed several payments.

If you are looking to add a cosigner to a loan in order to get approved for better loan terms, make sure they understand the pros and cons. Their credit history can be positively affected by you making payments, but they will also be accepting liability for the loan if you fail to make payments.

Are you underwater or upside down?
Do you owe more on the car than it’s worth? If you do, you might want to think about paying down the loan before refinancing. You’ll be able to get the best deal in refinancing if your loan is equal to or less than the value of the car. However, if you know you can get a better rate now, even if you’re underwater, it might be worth doing so. That way, more of what you do pay on the loan goes to the principal and you can pay down the loan faster. Then, once you’re no longer underwater, you can refinance again for an even better rate. You’re not limited on the amount of times you can refinance.

Are you in danger of a repossession?
If you lost your job, had a family emergency, or just have a lot of trouble making payments, refinancing can make the best of a bad situation. You may not be able to finance into a loan that has a lower APR, but you may get a loan with a longer loan term, which will lower your monthly payments and give you more room to catch up.

Have auto loan rates dropped recently?
National trends in loan interest rates change based on national policy, politics and demand. Rates are expected to continue to increase this year, and indeed, rates hit a five-year high in February 2018. This isn’t a good trend for the auto loan consumer, as auto loan rates increase with it. If there is a sudden jump in the national rate for the season, consider refinancing a little later. If there is a sudden dip, like there was in the fall of 2017, it’s a good time to shop around.

When to consider refinancing

When to avoid refinancing

If the car is worth more than you owe on the loan.
Positive equity in a vehicle is attractive to lenders and will put you in the best situation to get a great rate.

If your credit improved significantly from the time you signed the auto loan.
By paying your obligations in full and on time, your credit might have gone up since you first got your auto loan.

If you’re in danger of a repossession.
Skipping and missing payments can have a negative effect on your credit. Refinancing could help you get a lower monthly payment you can afford and help you avoid trashing your credit score.

If you want to change something with a cosigner.
You could add on or take off a cosigner to the benefit of your interest rate.

If your credit has worsened significantly from the time you signed the auto loan.
Lenders base the interest rate heavily on your credit history and your credit score. Getting an auto loan with bad credit is not necessarily impossible, just more expensive.

If you owe a lot more on the loan than the car is worth.
If the car is worth a lot less than what you’ve promised to pay, the loan is riskier, thus making it harder and more expensive for you to get a loan — but there are ways to handle this type of situation.

If national interest rates rise by a point or more.
Interest rates on auto loans change along with the flux of interest on the U.S. 10 Year Treasury Note, because the loan terms are similar. If it shoots up, the lowest APR you can get will go up as well. Depending on your situation, it might be better to wait to shop for the best refinancing deal — or, if you want to refinance as soon as possible, go ahead and refinance and then keep on eye on national rates to maybe refinance again if there’s a big change.

If the car is brand new or really old.
Cars depreciate the most in the first two years. If you didn’t give a down payment, odds are that you’re underwater on your auto loan during that time period. Really old cars also aren’t really valuable to lenders and most have limits on vehicle age and mileage.

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.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at [email protected]

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Auto Loan, Reviews

The Best Auto Loans: 2019 New & Used Car Loan Rates

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

The best auto loan for you depends on your priorities, but two common goals are to get the most competitive rate and the lowest monthly payment. That’s why longer-term loans are so popular right now, with more people stretching out new and used car loans over 60 months or more. Despite that, new and used car payments hit an all-time high in 2017, meaning that people are spending more than ever on their vehicle purchases. That’s why MagnifyMoney has compiled a list of the best auto loans in 2019. We know that with rising rates, you need as much help as you can get finding the best rates to secure the vehicle you want and need.

Overview of the best auto loans in 2019

Company name

Best for

Loan types offered

 

LendingTree

Comparison shopping auto loan rates - LendingTree is not a lender.

New, used, refinance, lease-buyout

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LightStream

Car buyers with good or excellent credit

New, used, refinance, lease-buyout

APPLY NOW Secured

on Lightstream’s secure website

Capital One

Car buyers with fair or poor credit

New, used, refinance

SEE OFFERS Secured

on LendingTree’s secure website

Carvana Auto Loan

Buying a used car online

Used

SEE OFFERS Secured

on LendingTree’s secure website

How we picked the best auto loan rates

Using information from LendingTree, we compiled auto loan data over a six month period spanning across 22 auto lenders. We analyzed the loan data by applicant credit tier, and whether the loans were to purchase a used or new car to determine 1) the lenders consumers chose most often, and 2) the lowest average APR offered by the lender.

A closer look at the best new and used auto loans

Start with LendingTree

With LendingTree, you can fill out one short online form, and there are dozens of lenders ready to compete for your business. Upon completing the form, you can see real interest rates and approval information instantly. Some auto lenders will do a hard pull on your credit and this is common with auto lending. It’s important to remember, multiple hard pulls will only count as one pull, so the best strategy is to have all your hard pulls done at one time.

LendingTree
APR

As low as
3.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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.

 

Where people with good credit (680+) get the lowest rates

LightStream

LightStream is the online consumer lending division of SunTrust Bank. LightStream seeks to make the online lending process easy, so you may apply, be approved, sign your loan agreement and receive your funds all through your computer or mobile device — no papers to fill out or sign.

Why we chose Lightstream
Out of the lenders compared, borrowers with good and excellent credit were most likely to choose a loan with LightStream and receive the lowest APR. You can read our full LightStream review here.

New auto loan product details

  • APR: See table below
  • Terms offered: 24 – 84months
  • Loan amounts: $5,000 - $100,000

Lightstream New Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

73 - 84

$5,000 to $9,999

5.24% - 6.79%

5.84% - 7.39%

6.29% - 7.84%

6.59% - 8.14%

6.79% - 8.34%

$10,000 to $24,999

3.99% - 5.99%

4.44% - 6.24%

4.69% - 6.49%

4.94% - 6.74%

5.14% - 6.94%

$25,000 to $49,999

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.19% - 6.74%

5.39% - 6.94%

$50,000 to $100,000

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.14% - 6.69%

5.29% - 6.84%

As of 5/01/19. Includes a 0.50 point discount for autopay. Exact rates depend on your credit profile.

Used auto loan product details

  • APR: See table below.
  • Terms offered: 24 – 72 months
  • Loan Amounts: $5,000 - $100,000

LightStream Used Auto Loan APRs

Loan Amount

Loan Term (months) *

24 - 36

37 - 48

49 - 60

61 - 72

73 - 84

$5,000 to $9,999

5.24% - 6.79%

5.84% - 7.39%

6.29% - 7.84%

6.59% - 8.14%

6.79% - 8.34%

$10,000 to $24,999

3.99% - 5.99%

4.44% - 6.24%

4.69% - 6.49%

4.94% - 6.74%

5.14% - 6.94%

$25,000 to $49,999

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.19% - 6.74%

5.39% - 6.94%

$50,000 to $100,000

4.44% - 5.99%

4.69% - 6.24%

4.94% - 6.49%

5.14% - 6.49%

5.29% - 6.84%

As of 5/01/19. Includes a 0.50 point discount for autopay. Exact rates are dependent on your credit profile and for purchases made from dealer. 

What we like

  • Fixed rate, simple interest fully amortizing installment loans. This means you won’t pay interest on your interest, and if you follow the payment schedule, your loan will be fully paid off at the end of the term.
  • No fees or prepayment penalties
  • No restrictions on the vehicles year, make, model or mileage
  • If you’re not 100% satisfied, Lightstream will pay you $100 (conditions apply)

Where it may fall short

  • Loans may not be used for a cash-out refinance
  • Secured loans may not be used for commercial vehicles
  • Vehicle must be classified as automobile, sport-utility vehicle (SUV), light-duty truck, passenger or conversion van
  • No phone support for customer service. Everything is handled by email

How to apply
Before you apply, keep in mind that you’ll need to:

  • Have good credit
  • Have sufficient income and assets
  • Agree to electronic records and signatures

Applying is done entirely online. You’ll provide:

  • Personal information. Name, address, phone, Social Security number, driver’s license, etc.
  • Employment information. Employer name and address, income and other financial assets
  • Loan information. Loan purpose, loan amount and term
  • Security information. Create a username and password
LightStream

APPLY NOW Secured

on Lightstream’s secure website

Where people with fair (620-679) & bad credit (500-619) get the lowest rates

Capital One Auto Finance

Capital One is a Fortune 500 company and a trusted name in banking and other financial services. In the fourth quarter of 2017, Capital One originated $6.215 billion worth of auto loans, making it one of the top five U.S. banks offering auto loans.

Why we chose Capital One
The most borrowers with fair and bad credit chose a loan with Capital One, and it came in second in terms of lowest average APR.

New auto loan product details

  • APR: See table below
  • Terms offered: 36 – 72 months
  • Loan Amounts: $7,500 - $40,000

Capital One new auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

7.45%

7.99%

7.99%

10.97%

Average

4.76%

5.16%

5.16%

6.42%

Excellent

3.99%

3.99%

3.99%

3.99%

As of 5/01/19

Used auto loan product details

  • APR: See table below
  • Terms offered: 36 – 72 months
  • Loan Amounts: $7,500 - $40,000

Capital One used auto loan APRs

Credit

Loan Term (months) *

36

48

60

72

Rebuilding

11.11%

12.55%

12.55%

13.98%

Average

5.90%

7.36%

7.36%

8.95%

Excellent

4.53%

4.54%

4.54%

5.30%

As of 5/01/19

What we like

  • Easy to pre-qualify online without a hard inquiry on your credit
  • Minimum monthly income required is $1,500 or $1,800, depending on your credit
  • 12,000 auto dealers work with Capital One

Where it may fall short

  • The best rates require excellent credit with 20% down on the vehicle
  • Vehicles must be 2006 or newer
  • Vehicles must have less than 120,000 miles
  • Dealers may charge additional fees, including document fees, dealer preparation fees and delivery charges
  • Maximum loan amount may not cover the cost of the vehicle you desire

How to apply
Apply using Capital One’s Auto Navigator. Enter your personal information including your Social Security number to get pre-qualified for an auto loan without affecting your credit. Then take your financing certificate to the dealership to shop for cars and make a selection. Once you’ve selected a vehicle, the dealer will have you fill out a credit application and you’ll finalize the paperwork for your vehicle purchase with the dealer.

Capital One

SEE OFFERS Secured

on LendingTree’s secure website

Carvana

Carvana specializes in helping you shop for a car online. It uses things such as 360-degree photos, free vehicle history reports, details and specs, ratings and reviews to provide you with the maximum amount of information.

Why we chose them
We looked at the three used auto lenders chosen most often in each credit tier, and Carvana was the only lender in the top three in every tier. That’s why we chose Carvana, even though other lenders offered lower average APRs on used auto loans.

Product details – Used auto loans only

  • APR: APR depends on credit history, vehicle type and down payment.
  • Terms offered: Up to 72 months.
  • Minimum loan amount: None
  • Maximum loan amount: Any amount, as long as it’s a vehicle listed on the Carvana website.

What we like

  • High level of detail on vehicles makes online shopping easy
  • Online application personalizes your shopping experience and doesn’t require a hard pull on your credit
  • You can return the vehicle within seven days and get your money back (Make sure you’re familiar with the limits on this policy before you buy)
  • All vehicles are certified with a 150-point inspection

Where it may fall short

  • Only available for used vehicles
  • Carvana is a car dealership, and you must select a vehicle through their website

Online experience
Carvana provides a lot of information about each vehicle. You won’t have to visit other sites to find specs or read reviews

When you fill out the online application, you’ll see a breakdown of your monthly payment, minimum required down payment and your APR, making your shopping experience truly personalized.
How to apply
You may get pre-qualified with Carvana without a hard pull on your credit by filling out the online application. After you complete it, you may start shopping for a used vehicle, and your payment, down payment and APR will be displayed for each vehicle. Keep in mind, with Carvana, you must purchase a vehicle in their inventory.

Carvana

SEE OFFERS Secured

on LendingTree’s secure website

Understanding the auto loans process

How do auto loans work?

For the lenders we detailed above, you may apply for a loan online and receive personalized loan rates without a hard pull to your credit. So while you don’t see rate tables on certain lender websites, don’t be discouraged. If you’re serious, just fill out an application to see what you may qualify for.

Once you’ve completed the initial application, you’ll be able to shop for a vehicle knowing which type of financing you’ll likely qualify for.

Once you’ve selected a vehicle, you’ll need to submit a full application for the loan. This can be done online or with a dealer, if you’re working with one. Once again, most lenders are streamlining this process online, so for the lenders we discussed on this page, you may upload your documents using a computer or mobile device.

Once you’ve purchased the vehicle and completed your loan documents, you’ll just need to make payments. Making payments has moved online as well, and many lenders offer apps to help you manage your payments and loan information using your mobile device.

Tips when shopping for car loans

Here are some tips to help you avoid common mistakes and shop confidently for a car loan.

  • Set a budget. Everyone says it, but it’s not always easy to do. If you aren’t keeping a budget, here’s how to start in four easy steps.
  • Know how much you can afford. MagnifyMoney suggests you keep your total car expense less than 10% of your monthly budget. This is part of the 20/4/10 rule, which also says you should put down at least 20% and choose a maximum loan term of four years.
  • Save for a down payment. The amount of your down payment is likely to affect the interest rate you receive when financing your vehicle. So saving for a larger payment will help save you money and putting more down will lower your monthly payment, too.
  • Check your credit. You’re entitled to a free copy of your credit report from each of the three major credit bureaus every 12 months, and it’s easy to get your free credit score from a variety of sources.
  • Consider a co-signer. If your credit score is low or you have a limited credit history that needs improvement, having a co-signer with good credit on your auto loan could significantly lower your interest rate.
  • Shop around. It’s smart to get multiple rate quotes, so you may compare loans.
  • Get pre-approved. Shopping for a vehicle doesn’t make a lot of sense if you don’t know how much money you’ll have to work with. Shoppers have many options for getting auto loan quotes without a hard inquiry on their credit, but if you’re serious about buying a car, doing all your loan shopping in a short period of time will minimize the potential impact on your credit score, if loan applications result in a hard pull.
  • Talk to local credit unions. While banks and online auto loan companies offer easy-to-use online tools, don’t forget to talk to your local credit union to see if it has a more competitive rate.
  • Beware of extra fees. Keep in mind you’ll need to pay state taxes and title fees. In addition, dealers may charge fees, including document fees, dealer preparation fees and delivery charges. These fees will affect your APR if you finance them into your loan.
  • Check your paperwork. Everyone makes mistakes. When you get the final copy of your auto loan, check to make sure you got everything you were promised and there are no extra fees.

How to apply for an auto loan

From choosing the right car to getting approved for financing, this article will walk you through the complete online car buying process.

When you apply for an auto loan, it will help to have your documentation ready. This will include proof of identity, proof of income, credit and banking history and proof of residence. If you’ve selected a vehicle, you also want that information, including VIN, mileage, year, make and model.

While many online lenders advertise the loan process as being quick, be prepared for roadblocks. Sometimes a lender may request additional information or take time to verify information, and that may delay the process.

Be proactive! Once you’ve started the auto loan process, the lender will walk you through what’s needed. But that doesn’t mean you have to wait for your lender to get back to you. If the loan process has stalled, make a call or send an email to your lender asking what’s needed. In many cases, you’ll have an online login that will allow you to see your loan status, or take the next step online.

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Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

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