The one thing that’s keeping you from driving away with your dream car is an auto loan. I know shopping for a new car, truck or van can be an exciting time.
There’s no other feeling like it.
Comparing different features and taking it for a drive just make you visualize your life in it.
However, when it comes to paying for your new car, things can get complicated and not as fun.
Too often, buyers are so in love with their ride that they are willing to sign the first loan they can get their hands on.
But hold on, not so fast.
While that surely gets you behind the wheel quick and drive off in your new car, it could set you back financially.
In fact, getting the right auto loan is just as important as picking the ride itself.
With a wise selection, you can save tons of money in interest and installments. Meanwhile, other offers can as easily get you to overpay for your new ride and leave you with a dent in your finance.
This is true whether you’re buying a brand new car, something new to you, or refinancing an existing loan.
Regardless of the newness of the car, it’s essential to find the best terms possible.
The following lenders and brokers offer low rates and allow you to keep your payments low.
But before we head over to different offers available on the market, let’s take a quick look at what auto loan is.
And more importantly, how it is different from other loans and how to qualify for the best ones.
What Is a Car Loan?
Car loans are loans lenders provide for the sole purpose of borrowers buying a vehicle.
Lenders write auto loans for all types of vehicles including cars and motorcycles.
They are generally available for used or new vehicles. But one thing to remember is depending on who’s offering the loan, it may come with more specifics.
How Are Auto Loans Different From Other Loans?
In many cases, auto loans are quite different from personal loans.
And what sets them apart from typical all-purpose loans is security. Many auto loans are secured loans, which means the vehicle serves as the collateral.
This gives the lender the right to repossess the car should the borrower fails to make loan payments. Many personal loans which can be used for different purposes are not.
Because there is a valuable backing the loan, many auto loans tend to result in lower rates than a personal loan.
However, there are still a number of things that can influence your rates.
Down payment, credit score, and loan length are some that affect your loan terms.
Let’s take a look at each.
1. Credit Score
Unlike credit cards and personal loans, you are likely to be able to get approved for an auto loan with a poor score. In essence, it’s not much for the approval of the loan per se.
Rather, it’s more about the interest rate you can get for your auto loan.
While an excellent score above 740 may get you 4% or less interest rate, a poor credit below 620 can see theirs as high as 14 %.
Buying a $20,000 car with a 4-year term at 4% interest rate can bring your monthly payment to $452.
The same car with a 14% interest rate results in $547 a month.
Over the course of 4 years, by having stellar credit, you can save as much as $4,560 in interest.
If you are considering buying a car but you are rebuilding your credit, you may want to brace for the higher rate.
There is also an option to get a co-signer with an excellent credit if that’s within reach.
2. Down payment
Putting a down payment on your car has several advantages. To start, more you put down, the lower your monthly auto loan payment will be.
Sizable down payment may also help you access a better interest rate on your loan too.
And depending on the loans and their terms, putting a down payment may be inevitable.
If you have poor credit, the chances are your lender may require you to put money down.
How much down payment you need at the signing can vary, but typically it’s 20 % of your car’s purchase price.
This leaves the remaining 80% to financing.
But the question is what do you do if you are short on cash and can’t pay a down payment?
Thankfully, a down payment for your car does not always have to be in cash. It can take other forms. As a buyer, you can exercise a couple of other options.
One is to trade in your current car. Another is to use a cash rebate on your car’s purchase.
With a trade-in, it’s contingent that your dealer accepts a car on trade.
Once your vehicle’s trade-in value is agreed upon, it gets applied towards the down payment. This can work for both used and new car loans. My all-time favorite is by far the rebate.
Whenever I’m in the market for a new car, I make it a point to look for cars that come with a sizable rebate.
With that said, not all rebates get applied towards the down payment. Some get applied to the overall purchase price.
This allows you to decrease your total loan amount and monthly payments. But it’s not to replace the payment at signing.
However, if you’re willing to look around, you may find offers that can replace your down payment.
To see what’s available, check automakers and dealerships. Also, if you are open to electric vehicles, there are tax credits as high as $7500.
I have used this method every time I get a new car. In fact, I have gotten $7500 worth of down payment covered by a rebate. Needless to say, it felt pretty good driving off with no money out of my pocket.
3. Loan Term
Another important factor that influences your monthly loan payment is the loan length. Whether you get a 4-year loan or 8-year one would make a huge difference in how much you have to pay every month.
Obviously, the longer your loan term is, the lower your monthly would be. And it’s vice versa. So what’s the best auto loan term for you? For a new car, the average auto loan length is 65 months.
A used car loan’s average financing term is shorter. To determine what’s right for you, let’s take a look at what’s available.
Terms that are commonly available are 24, 36, 48, 60, 72, and 84 months.
While it’s easy to get tempted to sign a longer term to bring monthly lower, you should at least know this. Longer your loan is, more you’ll end up in interest. And the overage can easily be in thousands.
At the same time, picking the shortest term may not also be the straight answer.
With a $40,000 car with a 4% interest and a 36-month term, your monthly comes to be $1,181. At the end of 3 years, you’ll be paying $42,515 for the $40,000 financing.
The same car with 72 months, your monthly is $626. By the end of your term, your total interest gets $5,058.
Between the two loan terms, the difference in the monthly payment is $555.
If keeping your monthly high may put you in a risk of default in the future, it’s best to pick what’s manageable for you. Even if that means paying extra in the interest rate and paying for your car longer.
Also, be sure to ask your lender of early payment should you decide to go with a longer term and want to repay early.
With these factors in mind, here are some of the best car loan deals I found for 2019.
Best Auto Loan Deals for 2019
1. Bank of America
Loan term up to 60 Months
- Dealer New – 3.39%
- Dealer Used – 3.59 %
- Refinance – 4.14%
- Lease Buyout – 4.49%
Better yet, if you are a Bank of America’s Preferred Rewards Member, you can get a discount of up to 0.50%. That’s on top of the already very favorable rates.
More about Bank of America auto loan rates…
2. Alliant Credit Union
Loan term up to 60 months
- New Car -3.49%
- Used Car – 3.74%
- Refinance – 3.74%
- Used Vehicle 10-15 years – 6.74%
Credit unions tend to have a better rate than conventional banks due to them being non-profit. But one stigma is that you have to be their member.
If you are already a member of a credit union, check with them to see how their rates compare to that of banks.
Learn more about Alliant Credit Union auto loan rates…
3. Consumer Credit Union
If you are looking for a short-term auto loan up to 4 years or 48 months, this might be the best one out there.
- 0-36 months – 2.99%
- 37-48 months – 3.24 %
- 49-60 months – 3.64%
- 61-72 months – 3.74%
- 73-84 months – 4.69%
These apply to cars newer than 2017, and rates are contingent of your good credit.
Also, make and model of the vehicle may also influence your APR and qualification.
Read more about Consumer Credit Union auto loan rates…
Whether you are looking to buy a new or used car if you plan to finance your purchase, shop around for auto loans. If possible, even before going into your dealership, pre-qualify yourself. This’ll get you a pre-approval letter from your lender that you can take it to the shop.
It’ll provide you leverage and help you negotiate loan rates with your dealer too. In the end, more offers and more options give you the upper hand you need to get the best auto loan deal possible.
There is no other feeling like it when driving off the lot knowing you had the best deal on your dream car.