Finding the best auto loan rate when buying a new or used car is crucial when financing your new wheels. Depending on your car loan total and term, the interest rate can save or cost you hundreds, perhaps thousands, of dollars over the life of the loan.
Last year, the average new car loan reached a record $31,722, making it more important than ever that you find the best place to get an auto loan (at the best rate) before making a decision. 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 the best auto loan rates.
Whether it’s from a brick-and-mortar bank or an online lending company, 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 lender like OneMain might be a better pick if you have a lower credit score. 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.
The Best Auto Loans of 2020
The Best Auto Lenders of 2020
Though the service has only been around since 2016, auto refinancing is without question where LendingClub’s bread is buttered. Having helped more than 1.5 million people reach their financial goals, LendingClub offers its clients a straightforward, three-step refinancing process that is increasingly popular. After completing a brief application describing your vehicle and credit history, LendingClub will present to you multiple refinancing offers to choose from. After you pick the option that’s best for you, assuming no further documentation is required, LendingClub will take care of paying off your outstanding loan to your previous lender with no hidden fees. Though this streamlined service is an attractive option for loanees, prospective clients should bear in mind that the car being financed must be less than 10 years old and have under 120,000 miles on it. Additionally, your current loan must have an outstanding balance of between $5,000 and $55,000 and have at least 24 months of repayments remaining. For some, these conditions may be a deal-breaker, in which case a different auto loan refinance lender is likely a better option.
A subsidiary of SunTrust Bank, Lighstream offers some of the best auto loan rates to buyers through a number of different loan offerings. LightStream stands out from the competition because of its lightning-fast turnaround time in approving qualified clients for loans. The catch is that the majority of the clients that it approves for same-day funding must have excellent credit in order to be financed. Assuming your credit is up to par, the benefits that LightStream can offer you make it well worth all of those years of financial discipline. Lighstream’s loan offerings range in value from $5,000 to $100,000 with APR rates varying based on the length of your loan. Additionally, if you can prove that one of LightStream’s competitors is offering a better rate, LightStream will improve its initial offering with a rate that is 0.10% lower than the rate being offered by the competitor. With no restrictions on the basis of car year, make or model and enticing options such as auto lease buyout, LightStream’s auto loan options are some of the best you’ll find.
With over 100 years of experience servicing clients, OneMain is among the most tenured of the auto loan providers reviewed here. Starting at 18% in a best-case scenario, its APR rates are certainly not for the faint of heart nor shallow of pocket. OneMain also doesn’t shell out a ton of cash to its loanees, providing a maximum loan of just $20,000 to qualified customers. Despite this, OneMain users can take advantage of a number of benefits, including same-day financing, no hard minimums for applicant credit scores, and the option to apply for a secured credit loan with collateral, possibly opening the doors to a larger-than-expected loan. Additionally, loanees that get cold feet after agreeing to an auto loan can cancel their agreement within seven days of putting pen to paper as long as they return all funds and sign a cancellation agreement. With 1,700 offices in 44 states, OneMain is widely available and perhaps the best place to get a car loan for buyers looking for a bit more leniency from their lending institution.
Capital One might be better-known for its credit card offerings, but it also has some of the best auto loans around. Users seeking a loan from Capital One benefit from a number of handy tools, including its Auto Navigator function, which allows buyers to filter their searches by a car’s specific make and model as well as dealerships near them. While this is useful, customers should be wary of the fact that in order to approve a used car loan, Capital One requires that the car in question be at least a 2006 model, with half of the states that Capital One services requiring the model to be from 2008 or later. If this is no problem for you, you can enjoy loans of up $40,000 and APR rates as low as 3.24%, depending on your credit score.
With current online and bank branch rates as low as 4.59% APR, U.S. Bank offers an attractive financing option for drivers seeking the best auto loans. Most notable among U.S. Bank’s auto loan offerings is its financial flexibility. The bank requires no money up-front from users in order to borrow and even offers as much as 120% in financing to help buyers cover additional expenses like title registration. To top it all off, if you are an existing U.S. Bank customer, you can qualify for a loyalty discount by signing up with autopay. The only word of caution we would offer in securing a loan through U.S. Bank is that it tends to be very particular about the types of vehicles whose loans it’s willing to finance. Vehicles with over 100,000 miles and, in some cases, vehicles even with just 80,000 miles or more often are not eligible for U.S. Bank auto loans. This is also true for salvaged or rebuilt vehicles.
Bank of America
With the power of its name recognition alone, Bank of America instills trust in most buyers. With offices in all 50 states, Bank of America has one of the widest reaches of any of the lenders compared here. Apart from its wide-ranging presence, its loan offerings are also nothing to sneeze at. After completing a one-minute loan application online, customers can find out the amount that they would pay monthly as well as the Bank of America auto loan rates that apply to them, given the length of their loan. Customers with strong credit scores may be eligible for rates as low as 3.19% for new cars, 3.39% for used cars and 3.99% for refinancing. Additionally, existing BofA clients are eligible for a 0.5% discount on the APR rate applied to their loan, while other loanees can take advantage of no prepayment penalties if they decide to pay off their loan early.
Powered by Ally Bank, ClearLane offers prospective buyers an interesting option for some of the best auto loan offerings. One thing that makes ClearLane different from most other lenders reviewed here is that it is an intermediary. ClearLane does not personally offer buyers loans, but rather serves as a marketplace where users can find the loans that work best for their circumstances. ClearLane’s specific focus is on auto lease buyouts, and it does a pretty impressive job of paying balloon fees — what users pay at the end of their lease if they decide to buy the car — as well as gap insurance, which is paying the difference between what your car is worth and the outstanding loan value on that car if it gets totaled in a wreck. Additional perks provided by ClearLane include no hard pulls on your credit history in order to pre-qualify and availability in 49 of the 50 states (Nevada excluded).
The Best Auto Loan Marketplaces of 2020
Instead of shopping and applying at individual lending companies, marketplaces like MyAutoLoan let you compare multiple offers for car loans in one place, at the same time.
Through a free application process, MyAutoLoan customers can get decisions from auto lenders within minutes. Some lenders may take longer to respond, but it makes the car-financing process a bit easier when you can see your options laid out in front of you in one place. The offers received will fit your financial situation and needs, but applicants are not obligated to choose any of them — if you happen to get a really great deal elsewhere, no harm done. You can even use MyAutoLoan’s interest rate estimator to get an idea of how much you’ll pay for your new vehicle. It even works for used vehicles, refinancing, private party and lease buy-out. MyAutoLoan provides consumers with all the tools they need to make a smart financial decision when buying a new car.
Started in 1998, CarsDirect is not only another marketplace for consumers to find rates that best fit their financial situation, but it also keeps you updated with the latest deals and vehicle MSRP reductions. When looking for an auto loan provider, CarsDirect sets up customers with loan providers after a quick and secure application process. Once a customer is connected with a loan provider, more details are discussed and the loan can be accepted or denied by the borrower. CarsDirect is also a car-buying service. You can look up the make and model of your desired vehicle and then get connect with dealerships and quotes for a new or used car. Like many auto loan marketplaces, the loan that is offered to you is based on your financial health and situation.
This auto loan marketplace is specifically for car loan refinancing. To qualify for refinancing, your vehicle must be no older than 10 years, have less than 120,000 miles on it and be for personal use only. Furthermore, the current loan on the vehicle must have a balance between $10,000 and $55,000, be at least one month old and have 24 months of payments left. If your vehicle and current loan qualify, then simply complete the application process and rateGenius will compare rates from a network of 150 lenders and find the ones that are best for you. Keep in mind this doesn’t mean that it will find the best refinance loan on the market. It will show you the refinance lenders that are best for your financial situation, including credit score, income and how much is left on your loan.
Like other marketplace lenders, AutoPay marketplace offers lender-applicant matching services, but is perhaps best known for finding car loan refinancing. Its website claims to help find applicants more favorable rates and lower monthly payments through its applicant-to-lender loan coordination efforts. Once you pick your products — new car loan or car loan refinance — submit your information and be matched with lenders that can provide the rates and terms that best match your financial needs and goals.
Best Car Loan Rates: Summed up
|Auto Lender||Min/Max Loan||APY||Terms||Best For|
|LendingClub||$5,000-$55,000||Varies||24mo+||Quick and easy refinancing.|
|OneMain||Varies by state||Varies||Varies||Buyers with poor credit or those in need of small loans.|
|Lightstream||$5,000-$100,000||3.49%-9.19%||24-84mo||Drivers looking for quick or same-day financing.|
|ClearLane||$5,000-$100,000||3.54%-10.24%||36-72mo||Drivers who want to buy out the lease on their car.|
|Bank of America||$5,000-$100,000||3.54% and up||36-72mo||Buyers looking for a streamlined loan process.|
|U.S. Bank||$10,000+||4.59% and up||12-72mo||Buyers wanting to spend little-to-no cash upfront.|
|Capital One||$4,000-$40,000||3.95%-11.53%||36-72mo||Drivers who know exactly what car they want.|
Seven Tips for Getting the Best Auto Loan Rate
Now that you know some of the best options out there for a car loan, let’s get into some more general strategies 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 auto 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.
Why is it important to get approved first 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.
Your credit score is also the single most important factor in the interest rates you’ll be offered. Excellent credit means a better rate, and bad credit means a higher interest rate — if you can qualify at all. 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. 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. 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 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. It may seem like a longer term loan is ideal because of the lower monthly payments (who wouldn’t want to pay under $300 versus nearly double that?), but look farther beyond short-term satisfaction. 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.
In most cases, you may reel in a better interest rate by buying new instead of used. Average interest rates for used cars can be significantly higher than they are for new cars, largely because people buying used cars tend to have lower credit scores than people who need a new-car loan.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. Also, don’t forget about insurance, which also changes with a new or used purchase.
#5: Don’t pay for ‘extras’ with your loan.
It’s no secret that car dealers will inevitably offer you a bunch of “extras,” from extended warranties to 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.
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.
How Big Should Your Down Payment Be?
Whether they’re buying a new or used car, most consumers pay an average 5% down payment. But if possible, we recommend saving up for a more substantial down payment of around 20%. Here’s why.
The higher your down payment, the lower your monthly payments will be. You’ll likely score a lower APR, too, because lenders may offer more favorable terms if you’ve got a hefty down payment.
Let’s say you’re looking to buy a $20,000 car, and you can qualify for a 60-month online car loan at 6% APR. With no initial down payment, your monthly payments will come to about $387, and you’d pay $3,199 in interest.
If you come up with a 20% down payment, you’ll reduce the principal by $4,000. Your monthly payments will drop down to $309 – almost $80 a month less than with no down payment – and the total interest accrued will drop to $2,559, saving you more than $600 overall.
Saving up for a larger down payment may seem daunting, but it’ll save you money in the long run.
Check Your Personal Loan Rates
Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.
Why Not Just Finance at the Dealership?
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 your bank or another lender involves a soft inquiry.
If you get pre-approved for your auto-loan before heading to the car lot, you are in better position to negotiate price with the seller, since you’re a potential “cash buyer” who doesn’t need to finance through the dealership.
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 may receive “holdback” fees from manufacturers. But the primary way dealers make money is via dealer-financed auto loans.
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.
How is Auto Loan Interest Calculated?
Interest is calculated as either “simple interest” or as “pre-computed interest.”
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.
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 may not be the best auto loan choice for someone who wants to pay their car off early.
How we Picked the Best Lenders
Most people consider the best auto loan company as the one with the lowest interest rates. But your interest rate ultimately depends on your personal credit score and the car you’re buying. For that reason, we considered many other factors besides interest rates.
The best lenders provided:
- Options – The best lenders offer financing 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.
- Same-day 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 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 Support – The best lenders had very detailed FAQs 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 beat Bankrate’s national average for new and used cars.
- Service Reputation – We considered how lenders fared in J.D. Power’s Consumer Financing Satisfaction Study. 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).
The Bottom Line
With so many different loan options to choose from, it’s important that you take your time and do your homework before seeking out financing for your next car purchase. No matter what your credit score or current financial situation may be, there’s a loan option out there that can help you pay for the ride of your dreams — or at least the ride that will get you where you need to go. If your credit score isn’t where you or your lender would like for it to be, and your car purchase isn’t urgent, consider taking some time to beef up your financial credentials. Even if your credit score is great, remember to look for discounts wherever you can find them and be wary of hidden fees and add-ons that lenders may try to sneak past you. If you’re willing to put in the work, you’re sure to find the best place to get an auto loan.