Auto Loan
In general when people buy a vehicle, they take out an auto loan to finance the majority of its cost. Auto loans are available from a number of sources so you may want to explore all your options before you actually borrow any money. You will also need to know how much you should borrow. To determine that you need to know how much your car or truck costs minus your down payment, if any. Once you know how much you need to borrow, you can use any number of online payment calculators to determine how much your monthly payment will be when you factor in interest.
Automobile Finance Options
Dealership Auto Loan
- Getting an auto loan from a dealership is fast, convenient, and can sometimes be competitive.
- You will likely face a high-pressure sales push to add more features onto the car or truck.
- Dealership loans can be front-loaded, which means your monthly payment is more interest than principle at the start. You want to avoid this if you intend to pay the auto loan off early.
Bank or Credit Union Auto Loan
- Getting an auto loan from a bank or credit union is perhaps the most tried-and-true way to go. With this, you get competitive rates, zero sales pitch, and personalized service.
- Most financial institutions will guide you through the process and can advise you on whether you’re paying too much for a vehicle.
- Banks and credit unions may also offer free life insurance or disability insurance with an auto loan.
- You’re likely to get a simple interest auto loan meaning the interest is spread evenly throughout the term of the loan.
Online Auto Loans
- Online auto loans are usually fast, convenient, and easy.
- You won’t be interacting with anyone personally so you’re dealing with a bit of the unknown.
- There are usually scams to look out for so be careful and do research.
Auto Loan Interest Rates
How much of an interest rate you get when financing a new or used car will depend on several factors.
First and foremost, your credit rating, which consists or your history and score, tells lenders the story of your spending habits and gives them a picture of how much of lending risk you are. The more risk they see you, the higher your interest rate is likely to be.
The length of the auto loan will also affect its interest rate. Shorter term loans will typically have a lower interest rate but your car payment will also be significantly higher.
Whether you buy a new or previously owned car will also affect your interest rate. Typically the newer the car, the lower the rate though you may find exceptions with some credit unions. They might have the same rate for new and used cars.
Finally, your geographic location may be a factor in your interest rate.
Minimum Credit Score
According to some sources, the minimum credit score needed to secure an auto loan is about 500. If you are like 30% of Americans with bad credit and you need to secure an auto loan, you should read our section on How to Secure a Loan with Bad Credit. The bottom line is the lower your credit score, the higher your interest rate will likely be. You may also need to find a co-signer to help you secure financing. While a score of 720 or higher will typically guarantee you the lowest rate, it will also depend upon your financial institution.
In general when people buy a vehicle, they take out an auto loan to finance the majority of its cost. Auto loans are available from a number of sources so you may want to explore all your options before you actually borrow any money. You will also need to know how much you should borrow. To determine that you need to know how much your car or truck costs minus your down payment, if any. Once you know how much you need to borrow, you can use any number of online payment calculators to determine how much your monthly payment will be when you factor in interest.
Automobile Finance Options
Dealership Auto Loan
- Getting an auto loan from a dealership is fast, convenient, and can sometimes be competitive.
- You will likely face a high-pressure sales push to add more features onto the car or truck.
- Dealership loans can be front-loaded, which means your monthly payment is more interest than principle at the start. You want to avoid this if you intend to pay the auto loan off early.
Bank or Credit Union Auto LoanBank or Credit Union Auto Loan
- Getting an auto loan from a bank or credit union is perhaps the most tried-and-true way to go. With this, you get competitive rates, zero sales pitch, and personalized service.
- Most financial institutions will guide you through the process and can advise you on whether you’re paying too much for a vehicle.
- Banks and credit unions may also offer free life insurance or disability insurance with an auto loan.
- You’re likely to get a simple interest auto loan meaning the interest is spread evenly throughout the term of the loan.
Online Auto Loans
- Online auto loans are usually fast, convenient, and easy.
- You won’t be interacting with anyone personally so you’re dealing with a bit of the unknown.
- There are usually scams to look out for so be careful and do research.
Auto Loan Interest Rates
How much of an interest rate you get when financing a new or used car will depend on several factors.
First and foremost, your credit rating, which consists or your history and score, tells lenders the story of your spending habits and gives them a picture of how much of lending risk you are. The more risk they see you, the higher your interest rate is likely to be.
The length of the auto loan will also affect its interest rate. Shorter term loans will typically have a lower interest rate but your car payment will also be significantly higher.
Whether you buy a new or previously owned car will also affect your interest rate. Typically the newer the car, the lower the rate though you may find exceptions with some credit unions. They might have the same rate for new and used cars.
Finally, your geographic location may be a factor in your interest rate.
Minimum Credit Score
According to some sources, the minimum credit score needed to secure an auto loan is about 500. If you are like 30% of Americans with bad credit and you need to secure an auto loan, you should read our section on How to Secure a Loan with Bad Credit. The bottom line is the lower your credit score, the higher your interest rate will likely be. You may also need to find a co-signer to help you secure financing. While a score of 720 or higher will typically guarantee you the lowest rate, it will also depend upon your financial institution.
