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Updated on Friday, February 28, 2020
If you’re looking to buy a car and need financing, the dealership isn’t your only option. Credit unions can be an attractive alternative as they’re motivated to set up good deals for their members. Pentagon Federal Credit Union is a perfect example as PenFed auto loan rates start as low as 2.14% for new vehicles and 2.99% for used. Rates dip even lower for qualified borrowers who purchase a vehicle through its car-buying service.
PenFed auto loan details
PenFed defines a new auto loan as one where you are the original owner and the vehicle is a 2018, 2019 or 2020 model. Used car loans are available for all model years up to 60 months while 72-month loans are available for autos from model years 2015 through 2020.
Refinance loans. If you have an existing auto loan, you could also refinance to access the same PenFed rates. The only difference is that you’re only allowed to finance up to 100% of the vehicle’s value, not 110% like a new or used auto loan.
Payment Saver loan. Finally, PenFed offers a Payment Saver program in which you take out a PenFed auto loan with a smaller monthly payment in exchange for a higher interest rate. At the end of this loan, you will still have an outstanding balloon payment which you will then need to pay off, refinance to another loan or cover by selling/trading in the vehicle.
New auto loan
Used auto loan
2.14% to 17.99%
2.99% to 17.99%
Starts at 2.99% for new auto loans and 3.74% for used.
$500 to $100,000
$500 to $100,000
$10,000 to $100,000
36 to 84 months
36 to 72 months
24 to 60 months
Minimum credit score of 610
Minimum credit score of 610
Minimum credit score of 610
The fine print
At PenFed, the best rates and flexible loan amounts are available on the shortest terms. For example, if you want a 36-month PenFed new auto loan, the minimum amount can be $500 and the lowest possible APR is 2.49%. But if you want a 72-month new auto loan, the minimum amount must be at least $15,000 with a lowest possible APR of 3.99%.
Loan to value ratio: For all of its auto loans except for a refinance, PenFed Credit Union offers 110% LTV financing, meaning you can borrow more than the actual value of the vehicle to cover costs like tags, taxes and extended warranties. But be careful when borrowing more than your car is worth — you don’t want to become upside down in your auto loan.
PenFed Credit Union does not have geographic restrictions on its auto loans, which are available nationwide. Its Payment Saver program is not available for Smart cars, trucks and SUVs. PenFed Credit Union also doesn’t offer financing for other vehicles like boats, RVs or motorcycles.
PenFed’s car-buying service
You could shop for an auto loan and the vehicle itself through PenFed Credit Union’s car-buying service. Through its website, you can search an online database of both new and used vehicles from dealers certified by car-buying firm TrueCar.
To use this program:
- First, search local listings online.
- If you find a vehicle you like, fill out a contact form to get in touch with a certified dealer.
- Set up your PenFed Credit Union financing.
- Test-drive the car at the dealership and, if you’re happy with it, sign the paperwork to complete the purchase.
- Report your purchase to take advantage of additional benefits.
Pros and cons of PenFed’s car-buying service
PenFed says members who use this service save an average $3,350 off a new car’s MSRP. But the biggest advantage might be a lower APR: as low as 1.14% for PenFed’s new auto loan and 1.99% for its used auto loan, a full 1% lower than its standard rates. You would also be eligible for additional benefits including $1,000 to cover insurance deductibles if you’re in an accident.
Downsides are that you’re restricted to TrueCar’s listings at specific dealers that do not guarantee that you’ll receive the lowest possible price. It’s possible you could get a lower price on your own at dealers of your choosing. But if you’ve done your research on your car, compare it with the price you receive through PenFed Credit Union.
How to apply for an auto loan with PenFed
Since PenFed is a credit union, you need to be a member to use its loans. However, you can apply for a new or used auto loan first to find out what they’d offer before you join. For the refinance and the Payment Saver program, you need to be a member to receive an offer, but you can sign up at the same time as your loan application.
Here’s how it works: Apply using PenFed’s online application. The application will ask for:
- Amount you’re trying to borrow
- Your income
- Your outstanding debts
- Your Social Security number (to pull up your credit score)
- Your address and other contact information.
Preapproval: If you’ve been a member of PenFed Credit Union for more than 90 days, you may be eligible for a preapproved auto loan. Getting preapproved let’s you know how much you could borrow before you start looking at vehicles. Once you submit your application, PenFed may be able to make an instant decision but it can also take up to 48 hours to review everything.
To help you plan for your loan, you could use the PenFed auto loan calculator to punch in information about your loan: amount, down payment, interest rate and your trade-in value to arrive at your approximate monthly payment and how much you’d owe in interest. You could also use our auto loan affordability calculator to start with your preferred monthly payment and work backward to a car price that fits your budget.
Can anyone join PenFed Credit Union?
Because PenFed Credit Union has an open national membership charter, anyone can join from anywhere in the country.
When you sign up for Pentagon Federal Credit Union membership, the online application will present you with a number of options for how you can qualify:
- Past or present military service
- If you work or are part of a list of accepted employers and organizations
- You live in one of PenFed’s covered locations
- You have a family member who is part of PenFed Credit Union
If one of the above doesn’t apply to you, you can make a $15 donation to join Voices for America’s Troops or a $17 donation to join the National Military Family Association to qualify for PenFed membership.
As part of setting up Pentagon Federal Credit Union membership, you’ll need to open one of its savings/share accounts with a balance of at least $5. It’s a free account that does not charge a monthly maintenance fee. This applies even if you just want to take out a loan. You also may need to provide your driver’s license, Social Security card and a recent utility bill so PenFed can verify your identity.
Pros and cons of financing through PenFed
PenFed auto loans can go as low as 2.14%, even 1.14% if you use its auto-buying service. That’s highly competitive even by credit union standards. However, you need excellent credit to qualify for its best rates. PenFed’s minimum loan term is 36 months for a new or used auto loan — you can’t take a shorter loan than that.
Competitive interest rates – PenFed rates go as low as 2.14% for new auto loans, well below the average auto loan rate of 5.66% for borrowers with the best credit.
Better deals through its auto-buying service – If you use the PenFed car-buying service, not only could you save money on your vehicle purchase, you could also qualify for a substantial discount on your auto loan APR.
Easy online application – There’s no application fee and you can apply for PenFed auto loans online. For its new and used auto loans, you can also apply without being a credit union member and only join if you like its offer.
110% LTV – PenFed auto loans can go up to 110% of the vehicle value, so you can borrow extra to cover other costs like tags and taxes.
Tougher credit score requirements – PenFed Credit Union only accepts people with a minimum credit score of 610 for its auto loans, and you may need over 800 to get the best rates.
Membership required – If you aren’t a PenFed Credit Union member, you’ll need to join and open one of its savings accounts before you can take out an auto loan. This may require donating to charity if you can’t qualify for another reason like your military service.
Limited online/phone support – There is no live chat option online and the phone system can be a bit tricky for non-members. We were eventually able to get to a live person, but it took several attempts.
PenFed vs. Navy Federal Credit Union
Navy Federal Credit Union is a close competitor to PenFed as they both have strong ties to military servicemembers and their families. When it comes to auto loans, Navy Federal Credit Union is another excellent choice. Its starting APRs and loan terms are nearly identical to PenFed and it also offers a car-buying program to help you find good deals.
Pros of Navy Federal: One key difference is that Navy Federal Credit Union has a wider range of vehicle loans. Besides auto loans, it offers motorcycle, boat and RV loans while these are not available at PenFed.
Cons of Navy Federal: On the other hand, qualifying for membership at Navy Federal Credit Union is more difficult. You are only eligible based on your past/present military service, because you work for the DOD or because a relative is a member. PenFed does not have these restrictions and everyone can use its products. Also, Navy Federal’s car-buying service does not offer a discount on its loans, like the one at PenFed.
If you are eligible for both credit unions, it may be worthwhile applying for an auto loan with each one. Neither charges an application fee so there’s no cost to see who would come up with the best deal for your financing.