The first rule of auto loans is to never finance one through a car dealership. The car dealerships will almost always have an interest rate markup over an auto loan that you can obtain on your own. So what are the auto loan rates you should be looking for? Below, we will go over the best lenders for different types of loans and other tips for getting the lowest rate.
The interest rates on loans are never static. The rates you will see a week from now will be different than the ones you see today. The differences will not be drastic, but you should know that rates are always fluctuating. One of the benefits of being a loan shopper right now is that loan rates have never been lower.
Best Auto Loan for Excellent Credit – Bank of America
If you have excellent credit, it’s hard to beat Bank of America’s rate of 2.69% for an auto loan. The bank does not publish its numbers for those with good or poor credit, so you will have to inquire with the bank to see if they remain generous to those with lower credit scores. Each lender will have its own definition of what constitutes excellent credit, but typically a credit score of over 780 would be considered excellent.
The 2.69% rate from Bank of America is strictly for new car loans. For a used car, the price goes up to 2.99%, which is still a superb rate. The rate goes up considerably, though, if you want to buy a car from a private party, with an increase to 5.79%. If you already have a car loan and want to refinance, the rate offered is 3.69%. That is also the number if you’re going to do a lease buyout.
Bank of America has a minimum loan rate of $7,500 but has no penalty if you want to pay off your loan early. Loan lengths range from one year to 75 months.
Best Auto Loan for Below Average Credit – LendingClub
As long as you have a credit score of 510, you can qualify for a loan from LendingClub. The rate can range from a low of 3.99% to a high of 24.99%, depending on your score. There is no income requirement, no social security number necessary, and no hard credit check when you apply. If you do not have excellent credit, LendingClub is worth exploring as an option.
The range of loans available from LendingClub start at a minimum of $5,000 and range up to as high as $55,000. LendingClub is also among the best companies to use for refinancing an auto loan. After submitting a brief application that includes your car and credit history, you will receive multiple refinancing offers to choose from. There are no hidden fees, and the transfer of loans is completely taken care of by LendingClub.
Best Auto Loan for No Money Down – Auto Credit Express
One of the great aspects of working with Auto Credit Express is that they will help match you up with a local car dealership to find a vehicle that fits your needs and budget. If you don’t have the money upfront to make a down payment and have less than desirable credit, using Auto Credit Express can be the perfect way to purchase a car.
The only downside to Auto Credit Express, which has an excellent reputation with those that have bad credit, is that there is an income requirement. You must have a fixed income of $1,500 or have fulltime employment to be approved.
Tips for Getting the Lowest Auto Loan Rate
Here are five tips to remember when trying to secure the lowest rate for your auto loan:
Build Up Your Credit Score Before Applying
If you can hold off on buying a new car, it will pay exponential dividends down the road if you can first improve your credit score. Those with excellent credit (780+) will secure the lowest interest rates, so if you’re close to that number, try waiting until you can boost your score over 780 before applying. Those will credit scores below 680 should also wait until you can improve that score up near 700 before applying for a loan.
If You Have Bad Credit, Use a Cosigner
If your credit score isn’t in the best place, but you need a car now, consider asking a family member with good credit to be a cosigner. With a cosigner, you are borrowing their good credit to get approval and a lower interest rate. The risk is all on the cosigner as well. If you do not pay back the loan, the cosigner is on the hook. Because of this risk, it’s best only to ask a family member or a close, trusted friend to be your cosigner.
Make a Substantial Down Payment and Secure a Short-Term Loan
With long-term loans, your monthly payment is typically less, as the money is spread out over a more extended period. But while this may appear attractive on the surface, you will end up paying much more in interest due to the longer term. By securing a shorter-term loan, you will pay off the car faster and potentially save yourself thousands of dollars in interest.
Don’t Settle for High-Interest Rates
If you are offered a rate higher than 10%, you should walk away. Even if that loan is the only one you are approved for, you will either be spending a large majority of your income on your car, or you may not be able to pay back the loan at all. Take the time to improve your credit score or find a cosigner if you are offered a loan in the double digits.
Do Exhaustive Research
While the lenders mentioned above are a good starting point and may end up being your best option, you should always do plenty of research if you want to secure the lowest interest payment. Everyone has a different set of circumstances when they go to buy a car, and interest rates are always fluctuating. The time you take now to do your research will pay off dividends down the road.