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How to Get Out From Under a Bad Car Loan

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.

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We all make mistakes. Maybe you’re struggling to pay your bills, especially your car loan, and are looking for a way to get out from under that burden. Or perhaps you’re doing better financially than when you purchased your car and it’s time to refinance into a better loan. No matter how you got into a bad car loan or why you want out of it, you always have options.Understanding those options is the first step to improving your financial situation. Here’s what you should know:

How do I know if I have a bad car loan?

If you have a bad car loan, you probably know it. A bad car loan is one that you can’t afford, or that costs you too much money in interest expense every month. If you are struggling to make car payments or are falling behind on your loan, you’re likely in a bad car loan.

What’s important to realize is that circumstances change. You could have taken out a loan on a new pickup truck while you had a good job and could easily make the payments. When you’re unemployed, however, the truck payments become a huge burden. You may even fall behind.

Another possibility is that you could buy a car when you have a thin or damaged credit history, at a high interest rate. A year or two later, when you have a decent credit score, you could do a lot better. A good car loan when you bought the car is a bad car loan now.

If you think you’re in a bad car loan or one that no longer fits your needs, it’s time to start finding ways out of that loan.

What’s a good interest rate for a car loan?

The interest rate level you should consider to be “bad” depends on your situation, primarily your credit score. “The interest rate you pay should not be higher than what you would pay on a credit card,” said Bruce McClary, vice president of public relations and communications at the National Foundation for Credit Counseling (NFCC) in Washington, DC. “Check your credit score and see where you are. Could you qualify for a lower interest rate loan? If you have a credit score in the 700s or 800s, you’ll get a good loan. If it’s in the 500s or 600s, you’ll probably still have to pay a higher interest rate.”

Generally speaking, the higher the interest rate, the more important it is to try to find another solution. “I would say any auto loan that carries an interest rate in the 20% range is something you would want to get out of quickly,” said McClary. “In the teens, in the high end, you should consider refinancing.”

6 ways to get out of a bad car loan

Before you decide how you should get out of a bad car loan, you should decide exactly what you hope to accomplish by doing so. Are you trying to get a lower interest rate, keep your car or not have car payments at all? If you don’t set clear goals, you could get out of one bad loan only to make your financial situation worse.

Once you know what you want to achieve, you can decide which of these options is best for you:

1. Refinance a car loan

If your only car problem is that you took out a loan with a too-high interest rate, either because your credit score was lower or because you didn’t shop around as well as you could have, you should probably refinance your car. In fact, if you have a car loan, it pays to occasionally check that you are still getting the best deal possible on your car loan.

Refinancing with a new lender can help your credit history if you have missed payments on your car loan. “You can get creative, refinancing the amount you owe and flipping it into a new loan,” said McClary. “Then, you’re starting with an account that is healthy.” Bear in mind that if you have missed payments, your current lender has probably already reported negative information to the credit bureaus. That information will stay on your credit history for up to seven years, even after you close the account.

You could also refinance your car loan if you want to change the length of the loan. For example, say you originally took out a 3-year loan, but the payments are too high. You might refinance with a 4- or 5-year loan, instead.

Refinancing a car is almost always a better financial decision than getting a new car to get out of a loan. You generally pay a few fees to refinance, but you avoid paying sales tax on a new car, and you avoid the temptation to buy a more expensive car, just to get out of a bad loan.

Be sure to shop around for a car loan refinance. You can start your search at your local bank or credit union, or online at MagnifyMoney. Fill out an online form, and receive potential refinance auto loan offers from lenders at once, depending on your creditworthiness. Use the auto loan calculator to see how much a car loan should cost, and how much you can afford.

2. Renegotiate a car loan

If you just need help getting back on track, or need to make your payments more affordable, you can talk to your current lender. They may offer temporary hardship forbearance in certain circumstances, which means they can allow you a little more time to catch up.

Another way they may help is by extending the terms of your loan so your payments are lower. Be aware that the longer the term, the more total interest you will pay before your loan is paid off.

3. Pay off a car loan

If you want to keep your car, look for a way to pay off or pay down your car loan. You may have savings you could use, if you can do so without jeopardizing your emergency fund and other goals.

Avoid taking money out of your retirement account. For one thing, you could owe a hefty penalty and taxes to the Internal Revenue Service. For another, retirement funds are for retirement.

You could also sell investments or other vehicles to pay off your loan, or work extra hours. Even if all you can do is make extra payments on your principal every month, you will pay off your car loan more quickly, and save a significant amount of interest expense.

If you don’t want to keep your car; for example, if your household has two cars and can get along with one, you can sell your car to pay off the loan. You’ll get the best price if you sell your car yourself. Be aware that you need to gain enough from the sale to pay off the loan, or come up with the difference yourself.

4. Trade in a car to get rid of a bad loan

If you need a new car anyway, you could trade in your old car as a down payment on a new one. The advantage of getting out of your car loan and car ownership, this way is that it’s easy. The dealership is motivated to sell you another car, so they’re almost certain to take your old car. They may even take it if you’re underwater on your current loan — if you owe more than it’s worth — and roll the excess amount you owe into your new loan.

Trading in your car can be a good idea if you are hesitant to try and sell your car yourself, and you need a more reliable or different car.

It is not a good idea for people who might use a bad car loan as an excuse to trade up to a more expensive car that strains their budget and prevents them from ever paying off a car or reaching other financial goals.

If you trade in your car, make sure you get the best loan you can get. Check your credit score before you go car shopping, and make any improvements to your score before you shop for a loan. Don’t just take financing at the dealership without comparison shopping the loans first.

5. Surrender the car to the lender

If you’re in financial trouble and you can’t keep up your car payments, one option is to give up your car. You can drive your car to the lender, or wait for them to come and get it.

Either of these options should only be a last resort. “You can turn in the car,” said McClary. “They’re holding it as collateral. You can give them the keys and say, ‘Here. I can no longer afford it.’”

The problem with turning in your car is that it is a “voluntary repossession.” If you owe more on the car than the car is worth and you can’t pay the excess amount (which is likely if you can’t afford your payments), it may harm your credit history and score. You should also be prepared to keep making your car payments until they sell the car, if possible. “You need to talk to someone immediately about clearing it,” said McClary. “Your credit won’t get any better unless you continue to make payments until they sell the car.”

Whether you turn in your car voluntarily, or you miss payments and they tow it out of your driveway, the repossession will be reported on your credit report.

The lender can sue you for the deficiency, or the difference between the amount you owe and the amount the car is worth, less the expenses of selling the car. So it’s possible you can lose or turn in your car, and still have car payments. And now your credit report is damaged, so any car loan you get will likely carry a high interest rate.

6. File for bankruptcy

If your finances have reached a point where you cannot pay your bills and you don’t see any other way out of debt, you may need to consider bankruptcy.Chapter 7 or Chapter 13 bankruptcy can actually help you keep your car, which can be important if you need it to get to work and earn a living.

Filing for bankruptcy doesn’t get you out of a car loan, however. You must continue payments on your car loan to keep your car in bankruptcy. However, filing for bankruptcy can give you relief from collection efforts by other creditors, making it easier for you to keep up with your car payments.

If you are considering bankruptcy and you want to keep your car and car loan, you must indicate to the court that you want to “reaffirm” the debt. By reaffirming, you promise to pay your car loan as if you had not filed for bankruptcy, in exchange for keeping the car. You must show that you can afford to make the payments and that the vehicle is necessary. Your ability to keep your car may depend on your equity in it, and your state law. If you reaffirm the debt, but fail to make the payments, you can still lose the car.

Alternatively, you can surrender your car in bankruptcy. In a Chapter 7 bankruptcy, this wipes out your debt. You may be able to keep your car until the bankruptcy is finalized.

Remember your long-term goals when getting out from under a bad car loan

It’s easy to think about short-term fixes to financial problems. And getting through this month and the next is important. Try to choose a path that lowers your interest expense and total debt, if possible. Avoid decisions that can harm your credit history. Your long-term financial health depends on taking a longer-term view as you decide on the best way to get out of your bad car loan.

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.

Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

Advertiser Disclosure

Auto Loan

Should I Buy a New or Used Car?

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.

new or used car
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You need a car, and the new cars you see look beautiful. They’re clean, smell nice and have every latest gadget and technological advancement. You figure a new car won’t break down, and it comes with a warranty and the option of a service contract. It’s so easy to go to a new car lot and sign on the line for the car you want.

On the other hand, you can get a used car for less, and drive it for years to come. But you dread haggling with the owner or you’re leery of a used car’s questionable history. If you hate to part with more money than you have to, you may agree with author and consumer advocate Beverly Harzog who said, “I have a visceral reaction to buying a new car.” Buying this year’s model may feel like an extravagant waste of money.

So which is better, a new car or a used one? It depends on you and your situation. Before you decide to buy a car, make sure you understand the advantages and disadvantages of buying new or used. Just as importantly, be sure you know why you are buying a car, what you want and need from it and what you can afford.

What are the advantages of buying a new car?

New cars have some advantages, which can sometimes make them worth the higher price tag, an average of $37,169, according to Kelley Blue Book, nearly twice as much as the average used car price of $20,247.

New cars offer the latest styling, technology and safety features

Car models tend to go four to six years between major redesigns. It can be difficult to tell this year’s model from last year’s, or even one from several years ago. If you’re a car aficionado and you want the look of the newest model, however, you may not mind paying for it.

Technological and safety features have made big strides in recent years. Heated and ventilated seats, 360 degree cameras and USB ports are common, though it’s likely you’ll have to upgrade to a higher trim level or pay more for some of these features. Some cars even offer features that were unheard of a few years ago like parking assist, which may help cars maneuver into a parking spot with limited or no driver assistance.

A new car should need fewer repairs in the first few years

New cars should spend less time in the shop than older ones do. Car parts wear out, often at fairly predictable rates.

Although the difference in repair costs varies between brands or even models within a brand, these costs trend higher as cars age. Using Edmunds’ True Cost to Own tool, for example, a consumer near Seattle who owned a 2014 Accord Sedan EX four-door sedan (2.4L 4-cylinder CVT) paid on average $320 for repairs in the first year of ownership. In the fourth year of owning the same car, the average amount rose to $507.

Buying a new car at the dealership is easy

Brand-new cars are sold by dealerships, not private parties or secondary dealers, which makes buying one fairly straightforward. Simply drive to a dealer, and they’ll be happy to sell you a car.

Because the car is new, you don’t compare mileage on one car with that of another, or worry about whether the car has been in a wreck.

The dealer will even be happy to sign you up for financing on the spot (although that might not be your best deal).

Some dealers offer new car incentives

Some dealer and manufacturer incentives are available to everyone, while others only work if you meet certain criteria, such as being a veteran or living in certain geographical area. For example, Toyota offers a $500 military rebate to qualified service members and veterans. You may qualify for 0% financing incentives, often available to customers with excellent credit. Although new cars are still more expensive than used ones, sometimes a new car incentive can help bridge the gap.

New cars often have better warranties and service contracts

A new car shouldn’t be spending much time in the shop, but if it does, a warranty or service contract can give you peace of mind. The contract may also help you maintain your car in top condition while it is in force, but research the pros and cons of extended warranties before signing.

What are the drawbacks of buying a new car?

If cost were not a factor, perhaps most of us would buy brand new cars every time. In the real world, however, we have limited funds and we need to make the best use of them. Here are three drawbacks of buying a new car.

New cars cost more than comparable used cars

“The gap between pricing of new and used cars is becoming pretty wide,” said Matt Jones, senior manager of Insights at Edmunds. “The average new car price is now about $37,000. A person who is looking to make the most of their money will see a savings on a used car of 30-40%.” When people make payments for close to six years on a car, the more expensive car costs them a lot of money in principal and interest.

“The most bang for my buck, without a doubt, is used cars,” said Jones.

The value of your new car is guaranteed to go down — fast

Cars don’t depreciate (go down in value) at an even rate over their useful lives. Their value tends to drop when they are driven off the dealer’s lot and plummet as much as 50% in the first few years, before slowing down around year five. Those first few years are expensive ones to own a car, when the showroom gleam is first wearing off. Insurance provider State Farm factors in depreciation as well as taxes in its new versus used calculator — plug in the price of a used or new vehicle you’re eyeing as well as your state and local taxes to compare.

It’s easy to overspend on a new car

With new cars, it’s easy to let the amount you are willing to spend creep up beyond what you intended to spend, especially if a dealer emphasizes monthly payments over total sales price. What’s a few thousand here and there when you’re spreading it out over several years?

When you’re bargain hunting for a used car, especially if you’ve saved up all or part of the money ahead, you may be able to stick to a budget more successfully and avoid mistakes.

What are the advantages of buying a used car?

The biggest reason to buy a used car is to save money, saving as much as 30-40%, but there are other reasons, too.

You may get a better car if you buy used

Buying an older car doesn’t necessarily mean settling for less. You may be able to afford a higher quality car if you’re willing to buy it when it’s a few years old. Harzog, the finance author, likes driving a luxury car, such as a Lexus. “I prefer used cars. I keep my cars almost until they turn into dust,” she said. “I’ve only had about four cars in my life.”

By consistently buying used vehicles and keeping them as long as possible, you’ll save over time. AAA estimates that the cost of owning a new car is an average of $8,849 a year — a significant sum if you roll from new car to new car.

You don’t own the car during the years of highest depreciation

If you buy the car after the first couple of years, it’s still a good car. But someone else has paid handsomely for the privilege of driving it new.

Used cars may still have plenty of good miles left

Cars are lasting far longer than they did in the past — Americans keep cars for an average of 10 years, longer for trucks and vans. “The reality is that most used cars, say three or four years old, are going to live for a long time,” Jones said. “Since cars have been built so well in the last few years, a lot of the fears people have can be put aside.”

If you’re worried about buying a used car, Jones suggested buying a certified pre-owned car. “Certified pre-owned is a used car, but it’s a used car that has been treated pretty well and is backed by the manufacturer,” he said. “It’s the best of both worlds. The carmaker is standing behind it.”

What are the drawbacks to buying a used car?

Although you’ll almost certainly save money buying a used car, you should know that buying a used car can be more complicated and sometimes riskier than buying a new car. Here are a few drawbacks of buying used.

You might end up buying someplace besides a dealership

You can buy a used car from many different places, including a reputable used car lot, dealership, website or from a private party. Some people are less comfortable going to used car lots or responding to classified ad listings to find cars. You could buy from a friend, but if anything goes wrong, you can lose the friendship.

It’s harder to compare the values of used cars

Comparing new car prices from one dealer to another should be fairly straightforward. Used cars can have more variables, from the number of miles on the odometer to the condition of the car. This makes it a bit more subjective to determine the value of the car. It’s important to research using a service like Kelly Blue Book or NADAguides.

Older cars require more maintenance and may not be under warranty

The older the car, the more it typically costs to keep it running. Some cars hold together better as the years go by, but they still need regular maintenance, and some parts will wear out. Standard manufacturer warranties vary in length, and some warranties are transferable to new owners, while others are not. Be sure you know if any existing warranty will transfer to you, and how much of the warranty period is left.

Your used car loan may outlive the car

If you buy an older used car, and you finance it for a number of years, be careful. “The danger is that the car is going to continue to lose value,” said Harzog. “You could end up underwater. You’re still making payments on a car, and it’s not worth what you’re paying.”

While this is also possible with a new car, especially if you don’t make a down payment or finance it for a long term with high interest, Harzog recommends that you pay off a used car as quickly as you can.

Is a new or used car better for you right now?

Before you decide to buy new or used, ask yourself these questions:

Do you want a new car? Assuming you can afford it, Jones said, “If you want the new car, get the new car. Maybe there’s new technology, or maybe they want to be the first butt to sit in that seat.” Buying a car is an incredibly emotional decision, and as long as you’ve done your research, buying the right car is more important than deciding to buy new or used. “Make sure you buy what you want,” said Jones. “That sounds obvious, but it’s not. When people buy cars they don’t want and they end up trading them in later, that mistake is far more expensive than any other mistake they could make.”

What will you use the car for? If you need a car simply to get to work safely, the latest technology and styling may not matter much. If you use your car in your work; for example, you drive clients around in your car, you may need to keep up with appearances. You may also need a newer model or specific features if you transport people or goods, if you live somewhere with inclement weather, or if dependability is your top priority.

What can you afford? If you have cash saved to buy a car, you know how much you can pay. If you’re financing a car, whether it’s new or used, make sure you can make the payments. “Just as a guideline, your car payment shouldn’t be more than 10% of your gross income,” said Harzog. “You just want to be sure you have enough cash to cover it. It’s a line item in your budget.” You could use an auto calculator to help you make your decision.

The bottom line

Buying a new or used car can significantly impact your financial life for years to come. A good car-buying decision can help you feel more secure, giving you reliable, affordable transportation. A bad decision, on the other hand, can cause stress and keep you from reaching your other financial goals. In the worst-case scenario, you could even lose your car and wreck your credit if you can’t make the payments.

Whether you buy a new or used car, the secrets to making good purchasing decisions are research, research and research. Before you buy a car, be sure you know why you are purchasing and what you need it for. Make a budget and know exactly what you can afford. And research cars, so you know what kinds of cars you are interested in, and what you should expect to pay, before you negotiate a good deal on your next car.

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.

Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

Advertiser Disclosure

Auto Loan, Reviews

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

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.

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

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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.

What Car Loan Amount Do You Need?
Calculate Payment Secured

on LendingTree’s secure website
Terms & Conditions apply. NMLS#1136

 

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

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 7/31/19. 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 7/31/19. 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 7/31/19

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 7/31/19

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.

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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.

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Understanding the auto loans process

How do car 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.

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.

Ralph Miller
Ralph Miller |

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