Auto loans are secured loans that help borrowers pay for a new or used car. They are available from dealerships and a variety of lenders, so it's important to shop around to find the best interest rates and terms for your vehicle.
Auto loans let you borrow the money you need to purchase a car. Since car loans are typically “secured,” they require you to use the automobile you’re buying as collateral for the loan.
This is both good news and bad news. The fact that your loan is secured does put your car at risk of repossession if you don’t repay the loan, but having collateral often helps you qualify for lower interest rates and better auto loan terms.
Auto loans usually come with fixed interest rates and loan terms ranging from two to seven years, but it’s possible to negotiate different terms depending on your lender.
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What to know first
When shopping for an auto loan, compare APRs across multiple lenders to make sure you’re getting a competitive rate. Look for lenders that keep fees to a minimum and offer repayment terms that fit your needs. Loan details presented here are current as of Jan. 6, 2022. Check the lenders’ websites for more current information. The auto loan lenders listed here are selected based on factors such as APR, loan amounts, fees, credit requirements and more.
| Lender |
Current APR
|
Terms
|
Loan Amount
|
|---|---|---|---|
| LightStream |
2.49% to 8.99% (with autopay)
|
36 to 84 months
|
$5,000 to $100,000
|
| Bank of America |
Starting at 2.29%
|
48 to 72 months
|
Starting at $7,500
|
| Capital One |
Not specified
|
24 to 84 months
|
Starting at $4,000
|
| Carvana |
Starting at 3.9%
|
Not specified
|
Not specified
|
| myAutoLoan |
Starting at 1.9%
|
24 to 84 months
|
Starting at $8,000
|
Rates as of 1/6/22
Auto loans are secured loans that use the car you’re buying as collateral. You’re typically asked to pay a fixed interest rate and monthly payment for 24 to 84 months, at which point your car will be paid off. Many dealerships offer their own financing, but you can also find auto loans at national banks, local credit unions and online lenders.
Because auto loans are secured, they tend to come with lower interest rates than unsecured loan options like personal loans. As of Dec. 22, 2021, the average APRs according to a Bankrate study are the following.
When looking for a car loan, it's best to shop around with a few lenders before making your decision. Each lender has its own methodology when reviewing your application for a loan and setting your interest rate and terms.
Generally, your credit score will have the biggest effect on the rates offered. The higher your credit score, the lower APR you'll receive. Having a higher credit score may also allow you to take out a larger loan or access a broader selection of repayment terms. Choosing a longer repayment term will lower your monthly payments, although you'll also pay more in interest overall.
If you've found a few lenders that you like, see if they offer preapproval — going through this process will let you see which rates you qualify for without impacting your credit score.
| Credit Score | Average APR New Car | Average APR Used Car |
|---|---|---|
| 781–850 | 2.58% | 3.68% |
| 661–780 | 3.64% | 5.35% |
| 601–660 | 6.32% | 9.77% |
| 501–600 | 9.92% | 15.91% |
| 300–500 | 12.99% | 19.85% |
Source: Experian State of the Automotive Finance - Q3 2021
It is possible to get a car loan with bad credit, although having bad credit will raise the rates you're offered. If you're having trouble getting approved or finding acceptable rates, try taking these steps:
The process of getting a car loan is similar to that of getting any other type of loan. Here's how to start:
Overview: With auto loan options for every type of deal you can imagine — including new cars, used cars from a dealer or private seller, lease buyouts and even classic car financing — LightStream is a great option for those with good to excellent credit.
Perks: According to Experian, the average new car loan is just over $37,000, with an average 69-month loan term. To finance that amount, and with those terms, LightStream currently has APRs as low as 2.49 percent for a new car loan (including a 0.5 percent discount for borrowers on autopay). LightStream is also able to fund your loan as soon as the same day you apply (conditions apply), and offers loan amounts from $5,000 to $100,000.
What to watch out for: You will have to sign up for autopay to get LightStream's best terms, and it is an unsecured loan, meaning you may be able to find better rates with a traditional auto lender.
| Lender | LightStream |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | 2.49% (with autopay) |
| Loan Amount | $5,000 to $100,000 |
| Term Lengths | 36 to 84 months |
| Min. Annual Income | Not specified |
| Fees | None |
Overview: Bank of America offers flexible and convenient auto loans you can apply for directly on its website. Rates are competitive, and you can qualify for additional discounts if you’re an eligible Bank of America customer.
Perks: Bank of America will finance a minimum of $7,500 ($8,000 in Minnesota). Financing is available in all 50 states and Washington, D.C. Bank of America’s APRs start at 2.29 percent for a new car and 2.49 percent for a used car. If you’re a Bank of America Preferred Rewards customer, you can qualify for a rate discount of up to 0.5 percent off.
What to watch out for: Bank of America requires that the car you're financing be no more than 10 years old, with no more than 125,000 miles and valued at no less than $6,000. Also, if you're applying online, the term range you can apply for is limited — you can only pick a 48-, 60- or 72-month term.
| Lender | Bank of America |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | 2.29% |
| Loan Amount | Starting at $7,500 ($8,000 in Minnesota) |
| Term Lengths | 48 to 72 months |
| Min. Annual Income | Not specified |
| Fees | Loan fee in some states |
Overview: Capital One will let you borrow as little as $4,000, but it requires you to purchase the car through one of its participating dealers. In a lot of ways, its financing works as a “one-stop shop” for your auto loan and vehicle purchase.
Perks: The Capital One Auto Navigator site lets you search for inventory in your area and gives you the ability to see how different makes, models and features will impact your monthly payment. This will give you a lot of information before you head to the dealer. Also, the quick prequalification allows you to check your rate through a soft inquiry, so your credit score won’t be impacted.
What to watch out for: You can use Capital One auto financing to shop only at one of its participating dealerships, which makes this a poor option if you find a car you love elsewhere.
| Lender | Capital One |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | Not specified |
| Loan Amount | Starting at $4,000 |
| Term Lengths | 24 to 84 months |
| Min. Annual Income | $18,000 or $21,600 |
| Fees | Late fee |
Overview: Carvana lets you shop for a car online and pick up your purchase from a giant “car vending machine.” Its process lets you enjoy a unique experience, yet Carvana also offers competitive car loan rates and terms.
Perks: Carvana is a great option for those who want to shop for their new car from home, as well as those with poor credit. Carvana’s only requirements are that you are at least 18 years old, make $4,000 in yearly income and have no active bankruptcies. When you prequalify, Carvana does not make a hard inquiry on your credit, so your credit score won’t be impacted; a hard inquiry is made only once you place an order.
What to watch out for: After you prequalify, you have 45 days to make a purchase from Carvana's inventory and either pick up the car, have it delivered to you or fly to the car and then drive it back.
| Lender | Carvana |
|---|---|
| Min. Credit Score | Not specified |
| Starting APR | 3.9% |
| Loan Amount | Not specified |
| Term Lengths | 36 to 72 months |
| Min. Annual Income | $4,000 |
| Fees | Varies |
Overview: If you want to compare multiple loan offers but you don’t want to spend a lot of time doing it, myAutoLoan is a great option. This platform lets you enter your information once and receive multiple loan offers in one place.
Perks: After filling out a single online loan application, you’ll be given up to four quotes from different lenders. To qualify, you must be at least 18 years old, have an annual income of at least $21,600, have a FICO score of 575 or greater and be purchasing a car with less than 125,000 miles and that is 10 years old or newer. By comparing multiple auto loan offers at once, you can pick the one with the interest rate, loan term and conditions that work for you and your budget without having to shop around.
What to watch out for: If you have poor credit, your interest rate could be on the higher side. Also note that you can use this platform if you live in most states, but not in Alaska or Hawaii.
| Lender | myAutoLoan |
|---|---|
| Min. Credit Score | 575 |
| Starting APR | 1.89% |
| Loan Amount | Starting at $8,000 |
| Term Lengths | 24 to 84 months |
| Min. Annual Income | $21,600 |
| Fees | Not specified |
The company that is able to offer you the lowest rates for an auto loan can vary depending on where you live, your credit score, your employment history and other factors. Your best bet is shopping around among at least three auto lenders until you find the best deal.
One problem with longer car loans is the fact that you often wind up “underwater” or "upside-down" on your loan. This is due to the fact that cars tend to depreciate faster than you can pay off your loan.
A 72-month car loan means you’re paying off your loan more slowly and have the potential to owe more than your car is worth for the first few years. However, longer car loans let you secure a more affordable monthly payment, which is likely an important consideration for your budget.
Used car interest rates range from 3.68 percent to 19.85 percent for most borrowers, according to the most recent statistics from Experian. Rates for used cars tend to be higher than those offered for new car purchases.
Superprime borrowers with credit scores above 781 are most likely to qualify for 0 percent APR offers that sometimes come with a new car. However, you may be able to qualify if you’re a prime borrower with a score between 661 and 780.
You can get prequalified for an auto loan online and without ever leaving your home. All you have to do is select one of the lenders on this list and choose its online option to “get prequalified” or “apply for a loan.” Many lenders let you get prequalified for an auto loan without a hard inquiry on your credit report.
Refinancing a car loan is essentially just taking out a new car loan — so the steps for applying are mostly the same. You'll need your driver's license, Social Security number and proof of income, as well as details about your car. If approved, you'll use the funds from your new loan to pay off your old car loan, then begin making monthly payments with your new interest rate and terms.
It is possible to sell your car with an outstanding loan, but you may have to go through a few extra steps. If your car is worth less than what you currently owe on the loan, you have what's known as negative equity — meaning you may need to pay the difference out of pocket or refinance the remaining amount with a different type of loan.
If your car is worth more than what you currently owe, on the other hand, you may be able to pocket the difference in cash when you sell the car. Whatever your situation, reach out to your lender about your options, as each lender sets different rules for selling a car with a loan.
Choosing between a dealership and a bank for an auto loan is complicated. In general, dealerships may offer higher rates than banks — but this may not be the case for used cars. Regardless, it's important to get quotes from a few banks or online lenders first; that way you can come to the dealership prepared. Ask for a quote from the dealership as well, comparing rates, terms and any additional fees.
Many lenders require some form of down payment on a car. However, that's not necessarily a bad thing; making a down payment will lower your monthly payments — and the larger your down payment, the more you save. Making a larger down payment could also lower the interest rate the lender offers you.
