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.
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.
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.
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.
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.
There are several different types of auto loans:
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.
To apply for an auto loan, follow these steps:
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.
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.
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:
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.
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