An auto loan allows you to borrow money to pay for a new or used car and repay it in monthly installments, which are usually spread out over several years. Shopping around for the best car refinance companies can save you a considerable sum of money over the course of your loan repayment.
Our Picks for Best Auto Loans
- No collateral required
- Available in all US states
- No fees
- Higher APR than others
- High minimum credit score required
- High minimum loan amount
- APR: 3.49–19.99%
- Loans from $5,000–$100,000
- Terms from 36–84 months
- Minimum credit score: 660
Lightstream is part of Truist bank and offers loans for a variety of purposes, with no need for collateral. It charges no fees and has no penalties for early payment. It even offers $100 in exchange for you filling out a feedback questionnaire after you receive your loan. There are no restrictions on the type of vehicle you can buy with an auto loan from Lightstream. As part of the American Forests program, the company plants a tree for every new loan it approves. Our Lightstream review offers further details of its services.
- Online prequalification process to match you with lenders
- Good for people with low credit ratings
- No application fee or penalty for early payment
- Some fees associated with certain lenders
- Loan approval can take 24–48 hours and loan funding 1–2 weeks—longer than with other lenders
- Loan eligibility varies from lender to lender
- APR: 1.99–17.99%
- Loans from $2,500–$100,000
- Terms from 24–96 months
- Minimum credit score: 560
Autopay is an aggregator that partners with a network of lenders across the US to offer online auto loans. It specializes in refinancing loans—the process of taking out a new loan, typically with better rates, to replace your existing one. As Autopay is a marketplace for lenders who compete for your custom, you may find lower rates offered here than from direct lenders. You’ll find more details in our full Autopay review.
- Prequalification process can make it quicker to find a lender
- Guaranteed Asset Protection (GAP) offered (in case your car is totaled in an accident before the loan is repaid)
- Extensive educational resources online
- Some lenders may charge origination fees
- Only offered on cars less than 10 years old with fewer than 120,000 miles on the clock
- Loan eligibility varies from lender to lender
- APR: 2.99–21%
- Loans from $1,200–$100,000
- Terms from 36–72 months
- Minimum credit score: 441
RateGenius is another aggregator, with a network of over 150 lenders offering auto refinance. It offers an extensive set of resources to help customers learn about auto refinance. Although it doesn’t state a minimum credit score requirement, the company publicizes that lenders in their network have approved loans to people with credit scores as low as 441. This makes RateGenius refinancing possibly one of the best loans for bad credit. More details in our full RateGenius review.
Best Auto Loans Guide
Auto Loan Interest and Terms
Auto loans all come with an APR (annual percentage rate) and term (the amount of time in which you must pay off the loan). The APR is an interest rate you pay on top of the money you’ve borrowed. The lender calculates it based on your income, how long you have to pay back the loan (the term), and your credit score.
Although it may seem like common sense to take as long a term as possible, longer terms can come with higher interest rates. You may also discover that you end up “upside down”—paying more in the end through the monthly repayments than the car was originally worth. Long terms may also decrease your vehicle’s equity—not helpful if you eventually want to use it as a down payment for a new car.
You should also watch out for prepayment penalties, where you’re charged a fee for paying off your loan too early. This is because the lender counts on you fulfilling your term so it can make a profit through the interest rates.
Types of Auto Loans
There are several different types of auto loans:
- Secured vs. Unsecured
Secured loans require you to offer up something of value as collateral, such as a house or a car. The lender will repossess this if you don’t keep up with your loan repayments. However, collateral does tend to lower your interest rates. Unsecured loans don’t allow companies to repossess your property, but they do come with correspondingly higher interest rates.
- Simple Interest vs. Precomputed
A simple interest loan is the most common type of loan. There’s an interest rate payable on top of the monthly repayment amount. The lender calculates this interest rate according to how much of the loan you still owe. Therefore, it will decrease over time as you pay back more of the loan.
Precomputed loans, however, come with a fixed interest rate that never changes. This means you don’t gain anything by paying the loan back faster. These types of loans are more often offered to people with low credit scores.
- Direct vs. Indirect
If you borrow money straight from a lending company, it’s known as a direct loan, such as the loans offered by Lightstream. An indirect loan uses a middleman, such as Autopay and RateGenius.
How to Apply for an Auto Loan
To apply for an auto loan, follow these steps:
- Check your credit score: This will determine the type of loan you’ll be able to get, as well as the APR and term you’ll be offered. If your score is below 600, you might be able to improve it using some of these best credit repair methods.
- Apply for an auto loan to multiple lenders: See which company offers you the best deal for your situation. Make sure you shop around with banks, credit unions, and online lenders. Always ask whether the lender intends to run a hard check on your credit before submitting an application. Multiple hard checks can negatively affect your credit score.
- Seek pre-approval: If you’re ready to buy your car, having a few loan options in your pocket will give you more negotiating power at the dealership. Furthermore, pre-approval usually involves a soft rather than a hard credit check, which is better for your score.
- Set a budget: Your pre-approval offers are the maximum amount you can borrow. You should add 10% to the cost of the car you want to buy to cover fees and taxes. Then add your down payment, the trade-in value of your current car, and lending terms to figure out the final monthly payment you’ll need to pay. You can use an auto loan calculator for this.
- Find your car: The fun part!
- Check the dealership financing options: These may be better than your pre-approval offers.
- Choose and finalize your loan: Make sure to check for any hidden fees, prepayment penalties, long loan terms, or extra add-ons you weren’t expecting.
New vs. Used Cars
Whether it’s best to buy a new or used car depends on your requirements and financial capabilities.
If you want to save cash and aren’t planning on keeping your car too long, a used car might be the best option. You’ll also tend to find lower average prices for used cars, as well as shorter loan terms. This means you can look forward to being debt-free sooner. As new cars depreciate by up to 20% in the first year alone, buying a preloved car means someone else has already taken that hit.
However, if you’re planning on keeping your car for more than six years or have very particular requirements, a new vehicle might be the way to go. You’ll also find certain bonus deals with new cars, such as low APRs or discounts. New cars tend to last longer and cope better with high annual mileages. If you’re planning to drive a lot in the first years of ownership, you might be happy about the warranty that comes with buying new.
Leasing vs. Buying a Car
The advantages of leasing over buying a car depend on your driving habits. A leased car may be attractive for its lower monthly payments and built-in maintenance package. You’ll also be able to access a car that you might not be able to afford to buy. However, if you lease a car for a long time, you could end up paying more than you would if you’d bought it at first. The leasing company will also limit the number of miles you can drive and will charge excess fees if you go over that.
Buying a car can feel like a big commitment. It can come with hefty monthly fees and up-front payments. However, you’ll gain equity in the end once you’ve paid off the loan. You also don’t have to worry about wear and tear or mileage limits. You’re also free, if you own a car, to sell it at any time.
Auto Loans and Your Credit
You’ll need a decent credit rating to get approval for an auto loan. Here’s the full range of credit scores with their rating labels, as reported by Experian:
|Rating/Scoring Model||Credit Score Range|
|Exceptional/Excellent||800 – 850 (FICO) & 781 – 850 (Vantage)|
|Very Good/Good||740 – 799 (FICO) & 661 – 780 (Vantage)|
|Good/Fair||670 – 739 (FICO) & 601 – 660 (Vantage)|
|Fair/Poor||580 – 669 (FICO) & 500 – 600 (Vantage)|
|Very Poor||300 – 579 (FICO) & 300 – 499 (Vantage)|
If you have poor credit, you should investigate ways to improve your rating. The first step is to get a current credit report. All US citizens have the right to receive a free credit report from each of the three major credit reporting bureaus (Experian, TransUnion, and Equifax) once a year. If you request a credit report from one of these bureaus every four months, you can keep an eye on your credit rating. Then you’ll be ready to dispute any anomalies if they spring up.
Once you have a handle on your credit situation, you can focus on boosting it. This can include strategies such as:
- Credit repair
This involves disputing inaccurate items on your credit report with the aim of getting them removed. You can do it yourself or use a credit repair company.
- Debt Consolidation
This means combining all your existing debts into one single sum. It can help make payments easier to manage but isn’t right for everyone—make sure you research the pros and cons of debt consolidation before you take this course of action.
How We Found the Best Auto Loans of 2022
We conducted thorough research into current auto loans offered by a range of US companies. Then we collated the data and chose the best deals to highlight here.
Summary of the Best Auto Loans of 2022
- Lightstream: Best for People with Good Credit
- AutoPay: Best for Variety of Loan Offers
- RateGenius: Best for People with Bad Credit
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