When we set out to find the best auto loans, we analyzed interest rates, processing times, company reviews, and other factors to create a comprehensive list showcasing the best possible auto loan options. We then broke down our selections into two categories to help you find the lender that’s right for your specific situation.
The Simple Dollar’s Picks for Best Auto Loan Companies
- Best Online Auto Loan Services: CarsDirect and MyAutoLoan
- Best of the Big Banks: LightStream, U.S. Bank, and Bank of America
American auto buyers take out billions of dollars in car loans each year, with the average new car loan reaching $30,958 in 2019. That’s a lot of money to pay back, so it’s incredibly important that you find a loan that best fits your unique needs.
As we researched the best auto loans, we looked for lenders that offered a wide range of loan types, quick approval, solid customer support and resources, and competitive interest rates. We broke down our list into two categories: the best online auto loan services, and the best of the more traditional big banks.
Whether it’s from a brick-and-mortar bank or an online upstart, the best auto loan for you will depend on your situation. A lender such as LightStream fits the bill for those with excellent credit, while a more specialized lender like Auto Credit Express might be a better pick for bad-credit borrowers. (If you have bad credit, you’ll also want to check out our guide to The Best Bad Credit Auto Loans to find lenders more suited to your situation.)
Best Online Auto Loan Services
CarsDirect CarsDirect is best known as a car-buying service, but it also provides a portal for getting the best auto loan. It provided a wider range of customer-friendly information than its competitors, including a loan calculator, trade-in-value calculator, and dozens of articles about car loans and buying strategies.
There’s also no minimum or maximum amount for which you can apply. For instance, some companies won’t allow you to apply for less than a $5,000 or $10,000 loan, or won’t even consider a loan for a car with higher mileage.
A downside here — and this goes for most online auto-loan services — is that after submitting your information, you may field calls or emails from lenders, even after making your selection.
- Great for smaller-dollar car loans on an older or used car.
- Provides educational resources to help borrowers make better decisions.
- Could open you up to numerous calls from interested lenders.
- Not the fastest site experience.
MyAutoLoan also connects customers with lenders for all major loan types, with the added bonus of allowing applications for lease buyouts.
A handy interest-rate estimator helps you get an idea of what you should expect to pay for a car loan based on your credit score, location, and type of loan. There are also calculators that help you estimate what you can borrow and what your payment will be for a certain loan amount.
- Quick turnaround on pre-approval process.
- There is no application fee.
- Your minimum monthly income must be $1,800, or your yearly income must be at least $21,600.
- Your contact information could be shared with potential lenders.
Best Online Auto Loan Services: Runners Up
RateGenius is a well-designed, easy to use service that connects customers with over 150 lenders who all compete to offer the best auto refinance loan or lease buyouts. The Austin, Texas-based company is committed to using technology to make the borrowing process as easy for consumers as possible, and claims to save the average refinance customer $78 a month with rates as low as 2.99%. You can apply online or by phone; just have your vehicle and loan information handy when you apply.
The big drawback here is that RateGenius doesn’t offer loans to purchase a car — they specialize in refinance loans and lease buyouts.
- Huge network of potential lenders.
- Over 9,000 good, certified reviews from customers.
- They will likely have to do a hard credit pull.
- Specializes in refinance loans and lease buyouts, not new car loans.
OneMain Financial is a stable, trusted lender that has served over 10 million customers. They’re known for responsiveness online and courteous service at their many in-person branches, and are typically willing to lend to folks with less than perfect credit. However, their rates aren’t as competitive as others on this list.
- One-on-one customer support.
- A+ rating from the Better Business Bureau.
- Can be hard to refinance your original loan once you get one.
- Lowest rates are not as competitive as other lenders we reviewed.
ClearLane is another marketplace that matches you up with lenders, and they try to separate themselves based on the way they quickly provide useful information. After filling out anonymous forms (and without requiring a hard credit pull), you’re presented with an estimate of what you qualify for and what you’ll pay. It’s refreshingly easy to use and straightforward.
- No hard credit pull.
- Powered by Ally Bank, a respected institution.
- Can take longer to get funded compared with competitors.
- Income requirement of $2,000/month to get the best rates.
Best of the Big Banks
LightStream, an arm of SunTrust Bank, is a compelling option for customers with top-notch credit. Rates start at 3.34% APR (as of Nov. 27, 2018) for 24- to 36-month loans in the range of $10,000 to $24,999.
Depending on your credit, LightStream offers secured and unsecured loans. They’ll also beat other lenders’ offers (view terms & conditions) and has a $100 guarantee for unsatisfied customers.
- Great pick for those with excellent credit.
- Fast loan processing and turnaround.
- Minor credit blemishes could disqualify you.
- Not ideal for those seeking a brick-and-mortar experience.
U.S. Bank offers the best blend of loan options, competitive interest rates, and consumer-friendly information of the big-bank lenders. Its loan options include financing for used cars purchased from private sellers, which many big banks shun. The auto-loan process is also very clearly detailed for prospective customers, and a special “green car” discount program reduces interest rates for buyers who choose certain fuel-efficient, EPA-certified “SmartWay” vehicles.
- Peace of mind working with a large bank.
- Great source of funding if buying a vehicle from a private seller.
- Not ideal if you’re looking for a lease buyout.
- May not offer the best rates if you’re looking for an older, cheaper car.
Bank of America
Bank of America provides all kinds of auto loans, including loans for cars purchased from private sellers and lease buyouts. The bank currently (as of Nov. 27, 2018) offers interest rates of 3.39% for a new car, 4.09% for a used car from a dealer, and 4.39% for a refinance.
- Plenty of branches for anyone who wants to do business face-to-face.
- Allows loans for higher-mileage and older vehicles.
- Does not provide financing for purchases at independent dealers.
- No online pre-approval.
Best Car Loans: Summed Up
|Auto Lender||Best For…|
|1||CarsDirect||Drivers who need a small-dollar car loan or want an older used car.|
|2||MyAutoLoan||First-time buyers or drivers who want to work with lenders to purchase their leased vehicle.|
|3||U.S. Bank||Drivers who want a loan to buy a vehicle from a private seller.|
|4||LightStream||Drivers who have good to excellent credit, substantial income, and want a loan fast.|
|5||Bank of America||Drivers who value Bank of America’s huge network of branches or want to buy a slightly older and higher-mileage vehicle.|
|6||RateGenius||Car owners looking for a quick refinance or lease buyout loan from the largest pool of lenders.|
|7||ClearLane||Drivers who want a great online tool with the backing of a trusted bank (Ally).|
|8||OneMain||Drivers who want same-day funding.|
Seven Tips for Getting the Best Car Loan Rates
Now that you know some of the best spots to look for a car loan, let’s talk about some more general strategies that you can exploit to make sure you land the best auto loan rates — wherever you decide to borrow.
#1: Shop around before you go to the dealer.
Never assume the dealer will offer you the best rate, especially if your credit isn’t perfect. Compare interest rates from outside sources (including banks, credit unions, and online auto-loan companies) and get pre-approved for the best loan you can find before you head to the dealer. It doesn’t mean you can’t go with dealer financing if they’ve got a great offer — it just means you don’t have to depend on it.
The dealership may have an incentive for the applicant to finance through a dealer loan, which may carry a higher interest rate or less favorable terms than a loan from another lender. Be sure to check with your credit union to understand what rate and terms you qualify for before going to the dealership.
-Stuart Graham, Assistant Vice President of Consumer Loan Operations for Sharonview Federal Credit Union
Why is it important to get approved instead of relying on dealer financing? A few reasons:
- First, you’ll have more leverage to negotiate an even better rate with the dealer’s preferred lender, but the deal won’t depend on it.
- Second, you’ll know what kind of rates you should be able to get, so it will be easier to tell whether the dealer has added a markup on the interest rate they’re offering through whatever lender they’ve partnered with.
- Third, you know what you can comfortably afford going in, which reduces the chance that the dealer will upsell you on a more expensive car.
#2: Know your credit score.
Any lender–whether it’s a dealer, finance company or bank– will want to make sure that they can trust you to pay back any loan that they offer you. The easiest way they can do that is by looking at your credit score. A higher score suggests that you’re a lower financial risk.
-Will Craig, CEO of LeaseFetcher
Your credit score is also the single most important factor in what kind of interest rate you can land. Excellent credit means a better rate. Bad credit means a higher interest rate — if you can qualify at all.
A good credit score saves you money on a lot of things– some of them unexpected. When shopping for an auto loan, a good credit score will mean that the interest should be lower, but that’s not all. In more states, a good credit score can also make your auto insurance premium a lot cheaper. You’ll save money up front and down the line.
-Andrew Rose, CEO at Compare.com
Basically, your credit score has a big impact on your loan rate, which in turn affects your monthly payment and what you shell out over the life of the loan. Check out the table of data below from myFICO to see how your credit can affect your loan rate — and how much it will cost you. The table assumes a $20,000 new-car loan with a four-year term:
Knowing your credit score ahead of time will help you know what kind of loan terms you can expect to qualify for — and it’ll also give you some time to improve your score if it’s not in great shape. While building good credit takes time, there are a few ways to boost your credit score quickly.
- Related: How to Raise Your Credit Score
Many credit cards now offer a free look at your FICO or VantageScore credit score. Alternatively, you can use a service such as this new credit monitoring service from our friends at Bankrate to check on your credit score before you start shopping.
Also, remember that when prospective lenders run a hard inquiry on your credit, your credit score can temporarily go down. But if you limit your loan shopping to a two-week period, your score won’t take multiple hits.
#3: Sign up for a shorter loan term.
As with any other loan, you’ll pay less in the long run if you can compress your payments into a shorter period. Check out the table below, based on data we obtained from this Bankrate calculator. It assumes a loan of $20,000 and an APR of 5%.
|36 months (3 years)||$599.42||$1,579.05|
|48 months (4 years)||$460.59||$2,108.12|
|60 months (5 years)||$377.42||$2,645.48|
|72 months (6 years)||$322.10||$3,191.10|
|84 months (7 years)||$282.68||$3,744.97|
While it might seem like a longer term is the way to go because of lower monthly payments — who wouldn’t want to pay under $300 versus nearly double that? — remember to consider the long term. If you could pay off your loan in three years, you’d pay just $1,579 in interest. If you opted for a lengthy seven-year term, you’ll be paying $3,745 in interest — more than twice as much — not to mention budgeting for a car payment for four extra years.
With auto loans, since it is a depreciating asset, you want to pay the least amount possible in interest. If you are paying a 10 percent interest rate on a vehicle that is losing 20% of its value every year, you can become upside down quickly and be stuck in a massive car payment even after its economic utility has been exhausted.
-Luke Kinton, Director of Marketing and Licensed Auto Insurance Agent for True Blue Life Insurance
Beware of dealers who try to sell you on a car by showing you how low your monthly payment can be. This tactic simply boosts their bottom line by diverting your attention from the purchase price, driving it higher along with your loan amount.
#4: Buy new — maybe.
It’s usually easier to land a better interest rate on an auto loan if you’re buying a new car instead of a used one. Average interest rates for used cars can be significantly higher than they are for new cars. That’s largely because people seeking loans for used cars tend to have lower credit scores than people who need a new-car loan.
One hidden cost to buying a new car is that sometimes the new car has much higher insurance rates than your old vehicle. In all the excitement of researching which car to buy, this is something that many new car shoppers never even think to consider.
-Joel Ohman, CEO and CFP of CarInsuranceComparison.com
Of course, the fact that new cars lose so much of their value immediately after you take possession is still a compelling reason to look at used cars, and that’s the reason why they’re the best deal most of the time. But be sure to consider the better financing you might receive on a new car while you’re making your decision. Similar sticker prices — for instance, if you’re comparing a new mid-range car and a used luxury car — could tip the balance in favor of the new car.
#5: Don’t pay for ‘extras’ with your loan.
Car dealers make a lot of money on all the little extras they will inevitably offer you. These extras could include extended warranties or upgrades like rust-proofing, fabric protection, and security systems.
Most experts warn that purchasing these add-ons rarely makes sense. But rolling them into your loan makes even less sense — the interest means you’ll be paying even more for these extras in the long run.
#6: Exploit interest-rate discounts.
Many lenders will knock a little bit off your rate if you sign up for automatic payments or pay your bill online. Others may give you a discount if you have a previous banking relationship with them or you’re purchasing a specific type of car. Don’t assume you’ll be told of these potential savings — always ask.
#7: Consider 0% interest deals, but do your homework.
Never say no to free money. A 0% interest auto loan is a good way to have an affordable payment and reserve your cash for other expenses or an emergency. Just make sure to look at the full terms associated with the loan and payment to ensure you can make it work in your long-term budget.
-Jayson Amandus, Director of Indirect Lending for Boeing Employees Credit Union
You’re not going to find a 0% interest rate offer at banks or credit unions, but you may find them offered at the dealership by your car manufacturer’s lender. It sounds too good to be true, but if you have excellent credit, you may be able to nab such a deal.
However — and of course there’s a “however” with this deal — you may have to take a 0% interest deal instead of another promotion, like a $1,500 cash rebate.
You’d have to do the math to figure out whether the 0% interest would save you more than $1,500 over the life of your loan, or whether you would be better off taking the rebate and using a low-interest loan on the reduced amount.
The pro is that you won’t pay interest on the loan. The con is that the loan period is typically shorter, so the required minimum payment will be higher. This may be harder for some people depending on their cash flow. In addition, dealers will be less willing to negotiate the car price when offering 0% financing.
-Cathy Curtis, Founder and CEO of Curtis Financial Planning
How much should my down payment be?
- Most consumers pay an average 5% down payment on a car.
- We recommend 20% to help reduce monthly payments and APR.
Whether they’re buying a new or used car, most consumers pay an average 5% down payment. But if at all possible, consider saving up for a substantial down payment. We recommend around 20% — here’s why.
The higher your down payment, the more you’ll be able to reduce your monthly payments and APR. And if you’re willing to make a substantial down payment, lenders may offer more favorable terms.
Let’s say you’re taking out an auto loan for $10,000. You’ve got a credit score of 680, which is good. Your lender is willing to offer $10,000, to be paid back over 48 months with a 7.08% APR.
|Down Payment (on $10,000)||Monthly Payment||Total Interest|
Source: Bankrate Loan Calculator
With no initial down payment, your monthly payments will come to about $240, and you’d pay $1,512 in interest over the course of your loan.
If you choose to put down an average down payment of 5%, reducing the principal by $500, your monthly payments still come to $228 and you’d pay $1,436 in overall interest — just $75 less compared with a 0% down payment.
But, if you come up with a 20% down payment, you’ll reduce the principal by $2,000. Your monthly payments will drop down to $192 — almost $50 a month less than with no down payment — and the total interest paid will drop to $1,202, saving you more than $300 overall.
Down payments should be as much as you can afford. A bigger down payment is best. It allows you to choose a shorter finance term, it will cover most of the vehicle’s first-year depreciation, and it will give you enough equity so you don’t have to come up with additional money if you decide to by a different car before you pay off the loan.
-Mike Kane, Vice President of Consumer Credit Operations for Ally Financial
Saving up for a larger down payment may seem daunting, but it’ll save you money in the long run.
Can I get pre-approved for an auto loan?
- You can — and usually should — get pre-approved for a car loan.
- It’s not always wise to wait until you’re at the dealer to finance an auto loan.
- Lenders might pull a hard inquiry on your credit history this late in the process.
- Seeking pre-approval gives you more wiggle-room to negotiate price.
- Seek pre-approval from a bank, credit union, or online lender.
- Research your ideal vehicle in advance, including make, model, and year.
- Don’t forget to consider peer-to-peer lenders; some offer pre-approval.
Waiting until you’re at the dealer to finance an auto loan isn’t always the best idea. You may not have as much control over the loan’s terms and, this late in the process, lenders often pull a hard inquiry on your credit history, which can create a short-term drag on your credit score. In most cases, getting pre-approval from a lender involves a soft inquiry.
Pre-approval for one of the best auto loan rates puts you in a good position to negotiate price with the seller, since you’re a potential “cash buyer” who doesn’t need to finance through the dealership.
Can I just get an auto loan from the dealer?
- Most dealers prefer this route… but you probably won’t get the best deal.
- Many dealers make more money through dealer-financed auto loans.
- Dealers usually act as aggregators, setting you up with lending partners.
- Dealers can increase the interest rate (this is called markup).
Most dealerships actually prefer that you get a loan directly from them, though if you do you’re probably not getting the best deal.
Believe it or not, dealers don’t make much money from just selling cars. According to CarGurus, gross profits from a car sale total around $2,000, but dealers usually experience a net loss of $200.
Instead, dealers make their money in other ways. For example, whenever dealers sell a new car, they receive “holdback” fees from manufacturers. But the primary way dealers make money is via dealer-financed auto loans.
Third-party loans, particularly credit unions, tend to have better rates than dealerships. It’s a bit more effort, but shopping around for a loan after choosing the car you want tends to be the best move. Banks and credit unions don’t have to inflate rates–low rates are how they get business, whereas dealers get business from both sales and financing.
-Julia Guardione, PR and Content Manager for rateGenius
Unlike a bank or credit union, car dealerships usually aren’t direct lenders. They act as aggregators, pairing your loan with one of their lending partners. When one of their partners chooses to finance your loan, they also charge a “buy rate” to the dealer.
A buy rate, according to the Consumer Finance Protection Bureau, is “the interest rate that a potential lender quotes to your dealer when you apply for dealer-arranged financing.” In other words, it’s the base rate that already exists on the interest.
But dealers can increase the interest rate. The final interest rate you see on your loan might be higher than what the lender originally offered. The new rate is called a “markup” or a “contract rate.” And the extra interest you pay usually goes to the dealer.
Choosing to finance with a dealer can be a solid option for financing a new car. But banks, credit unions, and personal lenders may offer you a loan with better terms. And if you get pre-approved for a third-party loan, you’ll have a lot more leeway when it’s time to negotiate with your dealer.
How is interest calculated on auto loans?
There are two different ways interest can be calculated on a car loan:
- Simple interest loans offer a dynamic principal-to-interest ratio that changes based on the remaining principal owed.
- Pre-computed interest loans offer fixed rates.
Simple interest loans
In a simple interest auto loan, interest is calculated only on the principal still owed on the loan. Instead of paying a locked rate, interest is amortized —meaning that the more you pay down the principal, the less interest you will be charged.
Because simple interest is amortized, you’ll be paying more in interest than principal at the start of your loan. But as you pay down your principal amount, the less interest you pay, until your payments go more towards principal than they do interest. However, your monthly payments remain the same. Anyone with a simple interest loan can reduce the interest they’ll have to pay by contributing a little extra towards the principal whenever possible.
Pre-computed interest loans
Pre-computed interest loans much more resemble a personal or other fixed-rate loans. Instead of a more dynamic interest-principal ratio, buyers are required to stick to a fixed payment schedule.
Monthly payments have a fixed ratio towards interest and principal. While pre-computed interest loans can seem like the most secure choice, they don’t make as much sense for someone that wants the ability to pay their car off early.
How We Picked the Best Auto Loans
Most people choose their auto-loan company based on who provides the lowest interest rates. Of course, whether you can land a competitive interest rate largely depends on your credit score and the car you’re buying. For that reason, we considered many other factors besides interest rates, which we’ll detail further down.
Don’t overlook local banks and credit unions in your search. There’s a lot of competition for auto loans, so you may be able to find competitive rates locally with the added benefit of a firm handshake, better customer service, and a personal relationship with your lender.
Credit unions can be a particularly good place to look. As nonprofits, they have lower overhead (which can mean better interest rates) and lower fees. On the downside, your loan application and approval process may be a bit more lengthy or cumbersome.
Finally, we did not look at manufacturer-specific lenders such as Ford Credit or Honda Financial Services. These lenders tend to be rated more highly than general lenders for overall customer satisfaction, so they’re certainly worth a look if they can give you the best interest rate on the car you want. However, because they restrict their services to one manufacturer, we did not include them in our analysis.
The best auto loan lenders and services provided:
- All or most major loan types: The best lenders offer loans for new and used cars, refinancing, and (less commonly) lease buyouts. Used-car loans are available even when you’re buying from a private party, not just a dealer.
- Instant or same-day online approval: You’re probably eager to get your hands on a new (or new-to-you) car. Chances are you don’t want to wait around for a lender to get back to you. We also immediately discounted lenders who do not allow customers to at least begin the approval process online.
- Online payment calculators and other resources: The best lenders provided calculators for prospective customers to calculate their monthly payment at certain interest rates and repayment terms. Bonus points went to lenders who also offered tools to help determine the worth of a trade-in vehicle or general car shopping tips.
- Comprehensive customer support: The best lenders had very detailed FAQs (frequently asked questions) as well as multiple methods of contact for customer support (such as email, phone, and online chat).
- Competitive interest rates: Advertised interest rates from the best lenders had to significantly beat Bankrate’s national average for new and used cars.
- Solid customer service: We considered how lenders fared in J.D. Power’s Consumer Financing Satisfaction Study, if applicable. While we looked at online reviews, we didn’t give them much weight (the majority of complaints about car loans are from customers who were denied based on highly personal factors, including their credit).
You’re in the Driver’s Seat When Shopping for the Best Car Loans
Whether or not you’re a buyer with perfect credit, competition for the best car loans is fierce. Use that to your advantage by doing a lot of comparison shopping before you sign on the dotted line.
Get your ducks in a row before you go car shopping. Know your credit score, know your available down payment, and know the value of your trade in.
-Sarah Lee Marks, Owner and President of MyCarLady.com
Remember to look up your most recent credit score, consider possible discounts and loan terms, and be aware of how every piece of the puzzle can affect your bottom line. Consider beginning your search with the companies profiled above — they are all solid choices.
If your credit is less than perfect, our guide to the Best Bad Credit Auto Loans will give you more options and tips on shopping strategies, including how to avoid scams. While you may pay a higher interest rate, you’ll be pleased to know that there’s still heavy competition for your business.
Once you’ve found a great car and a great loan, make sure you have the right car insurance. Our guide to the Best Car Insurance Companies can help you separate the best companies from the rest in a crowded market. Its companion article, How to Get Cheap Car Insurance, takes a more in-depth look at strategies you can use to keep your insurance bill low, no matter what company you use.