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

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.

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.

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 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

Advertiser Disclosure

Auto Loan

How Much to Put Down on a 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.

what to look for when buying a used car
iStock

A brand-new car might sound appealing, but may not always be the best financial option. That’s where used cars can come in. Used cars can be much more cost-efficient than new cars because they are just that: used, not new. And while you may not be the first person to own the car, you’ll likely find that an older model, say a 3- to 5-year-old car, can still offer high-quality tech and safety options that you’d find from something that’s brand new. Another good reason for a used car? You may get a chance to own a car that you normally wouldn’t be able to afford if you were buying it new.

Plus, used cars are great values for customers. Since a car’s depreciation usually happens within the first year, that means it has likely already taken place with used cars. In most cases, a new car can lose more than 20% of its value as soon as it leaves the lot. And nowadays, many modern cars can run for well beyond 100,000 miles, sometimes even longer.

The car-buying process for purchasing a used car is similar to the process for buying a new car, but you may wonder how much you should put down on a used car since it will be more affordable. Let’s take a closer look at how much to put down on a used car (and how it might compare with new cars) below.

What is a down payment on a used car?

When you buy or lease a car (both new and used), you’ll likely need to put money down first to help show the lender or dealer you’re financially committed. A down payment also serves other functions as well; it helps determine how much you’ll pay each month and what your interest rate on an auto loan might be (if applicable).

The math works out like this: The larger your car down payment, the better the interest rate and the lower the monthly payments will be on that vehicle.

So just how much should you put down? The average down payment on a new car is around 20-30%, which is more than used cars. The reason is because the depreciation in new cars happens in the first year, so you’ll likely need to put down more to help offset that hit.

Used cars on the other hand, don’t need as much of a down payment. In fact,most down payments for a used car range anywhere from 10-20% with a current average of about 11% of the car’s selling price, according to Ronald Montoya, a consumer advice editor at Edmunds, the car-buying site.

How to calculate how much you should put down on a used car?

Knowing how much you can afford to put down on a used car is pretty crucial to your finances. That’s why it’s important to only take on a car you can afford. Take a hard look at your finances to help determine how much you’re able to pay each month and how much you can put down. One way to go about this is by using online tools, such as MagnifyMoney’s auto affordability calculator. Here, you can plug in your how much you’d like your monthly payment to be and how much you’re willing to put down. Once you put in that information, you can get an estimate of how much you can afford on a car at its estimated value. Auto loan calculators can also help determine your estimated monthly payments on a new car loan if you choose to go that route, which is discussed in more detail later on.

Putting more down on a used car can help save you in the long run as it can help lower your monthly payment and provide a better interest rate. If you can’t put down the typical 10-20% of the car’s value, it might be wise to keep shopping around for a less expensive vehicle. You may also want to inquire with your lender about getting a possible lower interest rate loan.

What does ‘low down payment,’ ‘no down payment’ or ‘zero down payment,’ mean?

If you’ve been shopping around for a car, whether used or new, there’s a good chance you’ve heard the terms “low down payment,” “no down payment” or “zero down payment.” But what do they mean and how do they differ from one another? Let’s break each term down to get a better idea of what these down payment options mean and how they might work (or not work) for you.

What does low down payment mean?

A low down payment is a certain amount of money you put down to help reduce the money you’re borrowing. In years prior, anything less than 20% was considered a low down payment. Today, the average down payment for a used car is 10.9%. Anything below that may be considered on the low side, but usually a down payment within 1-5% range is typically a low down payment.

Pros of low down payment

  • Since you’re putting something down (even if it’s on the low side), you may get a lower monthly payment or interest rate than if you didn’t put anything down at all
  • Possibly shorten the term of your loan than if you didn’t put anything down
  • Shows the lender you are committed to the purchase

Cons of low down payment

  • It may only be a low down payment, but you still have to come up with the cash
  • You may not be putting down enough money to get the best monthly payment or interest rate

What does no down payment or zero down payment mean?

Zero or no down payment means you do not put any money down on the used car you’re buying. Unlike with a low down payment, you won’t have to put any money forward but you’ll have higher payments to worry about.

Pros of no down payment or zero down payment:

  • There is no down payment to come up with
  • Keeps more money in your pocket

Cons of no down payment or zero down payment:

  • Since you’re not putting anything down at all, you’ll likely have a higher monthly payment
  • Possible higher annual percentage rate (APR)
  • You may invest in something that is out of your price range because it was enticing without a down payment
  • Usually only offered to those with a credit score of 700 or higher
  • Your loan can go upside down, which means you’ll owe more on your car than what it is worth

Where do you find low or no down payment used cars?

Unfortunately, there’s no one-stop shop to find low or no down payment used cars. You’ll likely have to do a little digging on your own. You can start by going online to search for dealerships in your area and possible lenders to work with for an auto loan that offers the features you are looking for. Once you find a dealership or lender you’d like to work with, you’ll then be able to contact them directly to apply and determine a proper financing plan for your individual needs.

Each finance plan will vary depending on the lender and the car. One thing to remember: Interest rates are usually higher with used cars because they are riskier for lenders to invest in. Because older cars can break down and owners sometimes decide to stop paying for a broken car, the lender considers this a reason for borrowers to potentially default on their loan. Also note, any car over seven years old can be even harder to get a loan on.

Depending on the lender, you may have the option to apply for a low or no down payment directly on your application or you may discuss this once you are approved for the loan.

Credit history plays a significant role in buying any car, especially a new one. However, when it comes to used cars, you’ll likely only need a good to normal score.

For those who have poor credit, some consider a buy here, pay here dealership. These dealerships can possibly help finance your car when you might not be able to do it otherwise but be cautious, says Ronald Montoya. An option like this may be more costly and is not usually recommended. These dealers tend to sell older cars for much more than they are worth, with too high interest rates. And while you’ll be able to build up your credit if you choose to do business with this type of dealership, you should know that they don’t always report to the credit agencies. That means, you can be making all your payments on time without your credit score improving. If your credit is bad and you don’t have a lot of extra money to spend, you may want to work on raising your score first.

How do you finance a used vehicle?

Now that you have decided on getting a used car, you may be wondering how you’ll be able to finance it. If you’re like many and don’t have extra cash stored away to help buy your car in full, you may need some financial help.

Once you have figured out how much you want to spend on a used car, located the right vehicle for you, figured out what kind of down payment you can provide, it’s time to shop for lenders. An auto loan can help finance your ride by offering you a way to pay for the car with monthly payments. You’ll want to shop around for different lenders to find one that can offer you the best annual percentage rate (APR), which is determined by your credit history and the price of the car you’re looking to purchase. Car loan terms can vary depending on the lender and your credit, but tend to range from around 5 to 6 years. However, a 60-month loan term is ideal because you’ll have five years to finance your car rather than six, which is usually more feasible for most people. And since it’s only five years, you likely won’t grow tired of your car in that amount of time, as opposed to if you had the car for a longer period. Keep in mind, the loan term will depend on how old your car is; with an older car, you may want to try to get a shorter term.

And terms that are longer? These usually come with a higher monthly payment. When you find a potential lender, you’ll need to apply for an auto loan, which can be done online. Once you provide information on your income, employment, and the car you’re interested in, the lender will notify you whether or not you are approved.

Leasing a used car may also be an option. With a lease, the lender will determine your monthly payments by looking at what the car is selling for compared with its overall value. Interest rates on leasing used cars can be higher than with new cars but the terms (which vary with each individual) are usually the same as with new cars. Plus, at the end of your lease you have the option of purchasing the used car (just like with a new one) if you so choose.

The bottom line

Buying a car can be a financial strain. However, used cars can be a cheaper option while still providing you with some decent wheels. In order to get the best bang for your buck, you’ll likely need to put money down on a used car. Putting money down is a good way to save money because it will lower your monthly payment. If you’re looking to save more on your monthly payments, it might be a good idea to put more down if your finances permit. It’s important to only do what you can afford and to take a good look at your finances before making any final decisions.

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.

Carissa Chesanek
Carissa Chesanek |

Carissa Chesanek is a writer at MagnifyMoney. You can email Carissa here

Advertiser Disclosure

Auto Loan

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.

iStock

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