Best Auto Loans and Car Refinancing in May 2022
Shopping for an auto loan can feel stressful and overwhelming – but it doesn’t have to be. When you choose the right lender, you’ll find that the process is very approachable.
The best lenders save you money and offer expert customer service. Depending on your personal circumstances, you can get a variety of options with different rates and terms. Here’s how to find and choose the best auto loan for you.
The Top Lenders for Auto Loans
LendingTree is an online loan marketplace, acting as a matchmaker between you and its lending partners. All you have to do is fill out a simple questionnaire, and you’ll receive rates from a variety of lenders who match your unique financial situation. You can use the intuitive website to easily compare offers from multiple lenders, all in one place.
LendingTree offers auto loans for both new and used vehicles, as well as auto loan refinancing. There’s no minimum credit score to apply. LendingTree has partners who are known to offer loans to borrowers with credit scores as low as 550. Since it connects you with multiple offers, you can also find a range of interest rate options, with the lowest being 0.99%.
Once you choose a lender, you’ll have to leave LendingTree’s website to complete your application. Keep in mind that LendingTree gives your basic personal information to lenders, so you’ll need to hop on the Do Not Call List in order to avoid unwanted sales calls.
Despite its drawbacks, LendingTree maintains a 4.5/5 star score on Trustpilot with over 10,000 reviews. It offers an option for virtually anyone, even if your credit score isn’t perfect. It may also provide potential savings, with low interest rates available from some lenders.
Credible is an online loan marketplace that partners with lenders like LightStream to offer auto loans for new and used cars, as well as auto refinancing. Credible and its partners are exceptionally fast, with the ability to get you funding on the same business day you’re approved, in some cases.
When you enter some basic information on Credible’s website, including employment, income, and credit information, you can receive prequalified rates. Unlike some lenders, who only show you estimated rates during prequalification, Credible provides accurate rates. It also allows you to complete the entire loan process, from origination to closing, on the same website – no need to hop over to a lender’s site.
Some of Credible’s lending partners are willing to offer loans for borrowers with poor credit. Interest rates start at 2.49% and loan amounts range from $600 to $100,000.
Although Credible is a newer name in lending with just 8 years in business, it has a good reputation for customer service. It has a 4.7/5 star score on Trustpilot. This is, in part, due to the fact that Credible’s loan officers don’t work on commission. Since they have no incentive to upsell you, they have your best interests in mind as they guide you through the auto loan process.
Tresl specializes in vehicle financing. Whether you need to refinance an auto loan, buy out your lease, or purchase a company vehicle, Tresl can help. Through a network of lenders that spans the US, the company aims to provide hands-on help when dealing with the sometimes-confusing car purchasing process.
On average, people who use Tresl to refinance their auto loans save $102 each month. Tresl also offers competitive loan rates and can help you avoid expensive dealership buyout fees, which means you save money.
Tresl can prequalify you with a soft credit check. The company only requires a minimum credit score of 580, so even if you have poor credit, you will likely qualify. With loans ranging from $5,000 to $100,000, it has something for everyone. It can service all 50 states.
It’s important to note that Tresl does not offer new car loans, so its selection is limited. It also has vehicle restrictions, with a maximum vehicle age of 10 years and a maximum vehicle mileage of 150,000 miles. Despite these pitfalls, if your needs fit within Tresl’s offering, it can make the world of car financing much easier.
Once known as Innovative Funding Services, Tresl has 14 years in business altogether. It has a 4.7/5 star rating on Trustpilot, with an overarching theme of ease and convenience.
What Are Auto Loans and How Do They Work?
Auto loans are secured loans that you can use to pay for the purchase of an automobile. Secured loans are a type of loan that is backed by some sort of collateral. In this case, your auto loan is backed by the vehicle you’re buying. While this type of loan can offer you lower interest rates and better terms, you do run the risk of repossession if you fail to repay the loan.
Most auto loans require a down payment. They typically have a fixed interest rate with a set monthly payment. They usually range from 2 to 7 years, though some lenders do offer 1-year terms. Once they’re paid back in full, the car is completely yours.
For example, if you purchase a new car for $20,000 and make a down payment of $2,000, you’ll need an auto loan for $18,000. You’ll make a monthly payment toward that amount plus a set interest rate for the duration of the loan. If you have a 5% interest rate and a 5-year term, you’d be making $300 payments each month, plus $15 in interest for a total payment of $315 each month for 5 years.
Most car dealers offer in-house financing, but you can also get an auto loan through an online lender, local credit union, or national bank. Generally speaking, an auto loan from your car dealer will have higher interest rates than if you were to go elsewhere. However, they do sometimes offer better rates on used cars than you can find from a bank or credit union.
Who Can Apply for an Auto Loan?
Anyone can apply for an auto loan, though certain factors will determine what amount of money you qualify for and how good your rates and terms will be. As with any type of loan, each lender will have a different policy to determine what kind of rate, term, and the loan amount you qualify for. This methodology allows them to assess the risk that lending to you may require. The less risk you pose, the better rates and terms you can get.
The biggest factor lenders will consider is your credit score. The better your credit score is, the lower the rates you’ll qualify for, and the more you can borrow. Your credit score may also allow you to choose from more term options, whether that be a longer or shorter term.
While there’s no set minimum credit score to apply for an auto loan, your credit score will impact the loan you’re approved for. If you have poor credit, you might consider getting a cosigner with better credit, which will help you get better rates. You can also consider making a larger down payment, which will help lower your monthly payment as well as potentially get you better rates.
When applying for an auto loan, it’s important to shop around to get the best rates. You can compare multiple lenders on sites like Credible and LendingTree. When applying with direct lenders, be sure to complete your applications within the same period – ideally within 14 days. This is the window in which you can typically have multiple hard credit inquiries and have them count as a single hard credit hit. By doing it this way, you’ll create a minimal impact on your credit score.
Auto Loan vs. Personal Loan
While a personal loan can be used to fund lots of different things, an auto loan can only be used to purchase a vehicle. While personal loans can be used to purchase a car, the two types of loans have some big differences.
First, auto loans are secured since they use the car for collateral. Personal loans are most commonly unsecured, meaning there is no collateral backing the loan. Without collateral, personal loans tend to have higher interest rates than auto loans. Since auto loans are secured, they’re also easier to qualify for, even with lackluster credit history.
Personal loans offer a bit more flexibility than auto loans. Since they can be used for anything, there are no restrictions on how you spend the funds. You can also get a fixed or variable interest rate, whereas auto loans are always fixed. A variable interest rate allows you to take advantage of low-interest rates if the market is doing well – if it’s not, it can also mean your interest rate spikes.
Terms also differ between the two types of loans. While auto loans usually range from 2 to 7 years, personal loans can have a term of just 1 year – sometimes even less. If you can pay off your car quickly and want to, this might be a good reason to choose a personal loan over an auto loan.
Ultimately, choosing between a personal or auto loan depends on your financial situation. If you have poor credit, you’ll have an easier time getting an auto loan. Regardless of your finances, you’ll likely get a lower interest rate if you choose an auto loan over a personal loan. However, if you have good credit and want to pay off the loan within a short period of time, a personal loan might be better for you.
How to Choose the Best Auto Loan for Your Needs
When choosing an auto loan, you should consider:
- The interest rate
- The term
- Whether a down payment is required to qualify for certain interest rates
- The total loan amount
- The amount of interest you’ll pay over the term
- Any additional fees
These factors will all vary depending on what you qualify for and which lender you go with. The best loan for your needs will depend on your priorities.
Typically, people choose the loan option with the lowest interest rate, but it’s important to consider the term as well. Will you end up paying more overall because you entered into a long-term loan? Would you pay less overall if you chose a higher interest rate option with a shorter term? Compare the options and ask yourself these questions to get a clear idea of the total cost.
You’ll also need to factor in any additional fees. If those fees cancel out the savings you would have gotten, another lender might be a better choice.
At the end of the day, the best auto loan is one that fits into your budget. You may end up choosing to pay more in interest over a longer term because the lower monthly payments fit into your monthly budget better. There are a lot of moving pieces to consider, so take your time reviewing the math and your personal budget before choosing an auto loan.
Why Should You Consider an Online Lender?
Shopping for a car loan used to be a stressful experience, often with a pushy salesperson leading you through the process. Today, online lenders have changed the game completely.
Most importantly, online lenders typically have competitive interest rates in comparison to traditional banks. However, those rates are dependent on your credit score – if you have poor credit, you’ll likely need to shop around more and settle for a higher interest rate. With that said, online lenders are also more willing to work with people with poor credit than traditional banks are.
Shopping online allows you to compare rates from multiple lenders without leaving your couch. Online lenders typically have intuitive, easy-to-navigate websites that provide you with rates in minutes. You can also use online marketplaces, like Credible, to compare rates in one place rather than looking from site to site. These sites can prequalify you in minutes.
Additionally, there are so many online lenders that you’ll likely have a lot of options to choose from. That can make the process more time-consuming but ultimately allows you to get a better deal.
On the same note, you’ll likely find that there are some online lenders you’ve never heard of. Be sure to do your research to ensure that a lender is legitimate before giving them your personal information. You can easily check the Better Business Bureau for consumer reviews and complaints.
How Do You Apply for an Auto Loan?
With most people using auto loans to buy a new or used vehicle, the loan process is fairly streamlined. It is also very similar to getting any other loan. The process typically looks like this:
- Review your finances and credit score. You should know how much you have for a down payment and what your credit score is ahead of time. If possible, check your credit report for any errors. Since your credit score and down payment will affect what interest rate you’ll qualify for, it’s important to start here.
- Shop with multiple lenders. To make sure you get the best rate and term, compare options from at least three different lenders. It’s also helpful to compare rates from the different types of lenders – national banks, local credit unions, and online lenders. Look for a lender that has the best interest rate and terms. Be sure to check for any additional fees or if there is a downpayment required to qualify for lower rates. Then, choose a few that fit your budget best.
- Get preapproved. This is the first step in applying and allows you to see customized rates that you qualify for based on your information. Try to complete this step within about 14 days so that any credit inquiries count as a single hit instead of multiple. This will protect your credit score.
- Complete the application. Once you’ve found your car, you should complete your application. It will ask for information about the car, including registration, title, and purchase agreement. Be prepared with your driver’s license, proof of income, and proof of residence. You may also choose to compare your chosen loan to any finance offering from the car dealership to make sure you’re getting the best deal.
- Finalize the loan. Complete your paperwork and any additional steps that your lender may require. It’s a good idea to check that the loan amount, APR, term, and any potential fees are the same as what you’ve already agreed to before signing.
- Start making payments. After the loan is finalized, your payment schedule begins immediately and you’ll need to start making monthly payments. Paying your bill in full and on time is important for maintaining good credit and avoiding potential repossession.
How Much Does an Auto Loan Cost?
Your auto loan cost depends on many factors, including what credit-scoring model your lender uses. Credit score, type of loan, repayment term, and loan amount all affect whether you qualify for a lower interest rate.
Currently, the average interest rate for new cars ranges from 3.84% to 3.98%, increasing as the term increases. For used cars, the interest rate averages between 4.31% to 6.12%, again, increasing as the term increases. However, some lenders and car dealerships occasionally offer special rates, such as a limited time 0% APR or 0.99% for people with excellent credit.
Auto loan terms range from 2 to 7 years. As with any other type of loan, some lenders may charge additional fees. Origination fees, late fees, and prepayment penalties are common. Origination fees are the cost of processing and executing your loan, while prepayment penalties are fees that you must pay if you pay off your loan before the term ends.
What Can You Do If Your Auto Loan Application Is Denied?
Every lender follows a different methodology when approving or declining applications. Just because one lender denies your application, it doesn’t mean another will too. Check to see if you can prequalify with any other lenders. By only doing the prequalification process, the lenders should only require soft credit pulls and it will not impact your credit score.
If you’re set on working with a certain lender, you can also try reapplying with them. Be sure to adjust your application by either requesting a lower loan amount or increasing your down payment amount. You can try this same tactic if you choose to prequalify with other lenders as well.
You may also choose to get a different type of financing. A car dealership may have an option for you, though the interest rate will likely be higher. You could also try getting a personal loan, although you’ll need a good credit score to qualify. Personal loans also generally have higher interest rates than auto loans.
If you aren’t in immediate need of a new car, you can also take some time to work on your credit score. Focus on paying bills on time and in full. You can also use your credit card to make small purchases and then repay them right away to inflate your credit score.
You may also want to pull a credit report to make sure that everything in your history is accurate. Sometimes, an error in your credit history can drag your score down. If you find an error, you can petition to get it removed.
It takes time to rebuild your credit, so be patient with this method before applying for another loan.
Can You Refinance an Auto Loan?
Yes, you can refinance an auto loan. The process is fundamentally the same as taking out a new car loan. You can refinance in order to improve various aspects of your loan, including your monthly payment, interest rate, or term.
You should shop around for the best rates and terms before selecting a lender. If you’re approved, you can use the funds from your new refinance loan to pay off the original auto loan. Then, you’ll make monthly payments to your new lender, ideally with lower monthly payments and interest rates.
How do auto loans work?
Auto loans are secured loans, meaning they use your car as collateral. You’ll make monthly payments that include interest toward your loan amount for a set term. At the end of the term, you should have completely repaid the loan. At this point, the car is yours. If you fail to pay off the loan as agreed upon, the car may be repossessed.
What should you consider when choosing an auto loan?
Your credit score, income, down payment, and car’s make and model will determine what type of loan you qualify for. You should consider the interest rate, term, total loan amount, and any additional fees before choosing an auto loan. You’ll also need to consider whether you need to make a down payment to qualify for a certain interest rate, as well as the total amount you’ll pay when you add in the interest you’ll pay over the term. You can compare multiple lenders side by side on sites like LendingTree and Credible.
What is a good interest rate for an auto loan?
Interest rates are generally lower for new cars and higher for used cars. Interest rates can range from 3.24% to 13.97% for a new car. They can range from 4.08% to 20.67% for used cars, depending on your credit score and lender. Some lenders occasionally offer 0% APR auto loans when you have an excellent credit score in the upper 700s to 800s.