| Company | Used APR Range | Used Loan Amounts | Used Loan Terms | Min. Rec. Credit Score |
|---|---|---|---|---|
| PenFed Best Overall | 6.49%–17.99% | $500–$150,000 | 3–7 years | Not disclosed |
| AUTOPAY Best for Bad Credit | As low as 5.69% | $2,500–$100,000 | 2–8 years | 500 |
| Consumers Credit Union Best Credit Union | As low as 6.34% | $500–$350,000 | 36–84 months | Not disclosed |
| LendingTree Best for Refinance | As low as 5.25% (Refinance) | Not disclosed | 36–72 months (Refinance) | Not disclosed |
| LendingClub Best for Fair Credit | 5.99%–24.99% (Refinance) | $4,000–$55,000 | 2–7 years | 600 |
| Carvana Best for Full Car Buying Experience | Not disclosed | Not disclosed | Not disclosed | 500 |
| OpenRoad Lending Best for High Maximum Accepted Mileage | 1.99%–24.99% (Refinance) | $7,500–$100,000 (Refinance) | 24–72 months (Refinance) | 500 |
Looking for something in particular? See our top picks for auto loans in a variety of categories:
What Is an Auto Loan and How Does It Work?
An auto loan is an installment loan used to buy a new or used car, or to refinance an existing auto loan. Auto loans are usually secured, which means the vehicle serves as collateral for the loan. If you fail to make monthly car payments as agreed, the lender can seize the vehicle.
You can use a personal loan to make a car purchase, but secured auto loans typically have lower rates because lenders have more security.
Auto loan lenders may allow you to borrow more than the purchase price of the car, to account for taxes, fees, dealer upgrades, and other add-ons.
Like other installment loans, when you borrow money with an auto loan the funds are provided in a lump sum. The borrower makes equal monthly installment payments until the term loan is paid off. The money is lent at interest, so the borrower ends up paying back more than they originally borrow.
Longer terms may come with lower annual percentage rates (APRs), but don’t be fooled. In general, it’s best to choose the shortest term and the highest monthly payments you can afford; this will make the overall loan as inexpensive as possible. When the loan is fully paid off, the vehicle belongs to the borrower (instead of the lender).
Auto loans are available from traditional banks, online banks, credit unions, and lending marketplaces (which partner with banks and credit unions). You’ll find new, used, and refinance auto loans from all of those sources, although some lenders only offer certain loan types; some lenders offer special deals for first-time car buyers, as well.
Auto loans are also available through dealerships that partner with banks; in some cases you may find lower rates through a dealership, but it’s worth getting pre-approved with lenders on your own to see what kind of rates you can get. Then, you can go to the dealership with some bargaining power—see if the dealer will beat the best rate you found on your own.
Learn more in our expert explanation of how auto loans work.
In our survey of over 1,000 auto loan customers, borrowers said the ability to get pre-approved was one of the most important loan features.
How to Apply for an Auto Loan
- You can get an auto loan from several different types of lenders: online lenders, banks, and credit unions. Dealerships themselves also partner with these lenders to offer you financing.
- It’s best to do your loan shopping before you actually start looking for a car, because you can take the time to find the best loan options and you’ll have more bargaining power when you do find the car you want.
- Each lender will check two things in order to approve your loan: your financial situation and the car you want to buy.
- You can start the loan shopping process by getting pre-approved with different lenders.
- If you’re pre-approved based on the initial details you provide, including personal details like Social Security number and some financial details, the lender will let you know what rates and terms you’re likely to qualify for.
- Lenders look for a few things. Your credit score, income, and debt payments are three of the most important factors, so it’s a good idea to clean up your credit in advance if it needs work and you have the time. Consider ways to reduce your debt-to-income ratio.
- If you’re not able to qualify on your own and you have someone who’s willing to help, applying with a co-signer can improve your odds of qualifying for a loan.
“When my wife and I were shopping for a car last year, we prepared by getting a pre-qualification from our bank—Bank of America. We did it online, through our account portal. It was really easy, and because we have several accounts with BofA, we qualified for a rate discount. We planned on using the pre-approval as a negotiating tool, and figured the dealer would offer a better rate. To our surprise, the dealer couldn’t beat it. So now we have yet another account with BofA.” — Lars Peterson (Investopedia Senior Editor, Financial Products and Services).
Once you find the car you want, you can provide the details to your chosen lender and submit a full loan application. The lender will usually disburse the loan funds directly to you, either by check or bank deposit. In some cases lenders may send the money directly to dealerships; for refinance loans, lenders may send the money directly to the current holder of your loan.
Your new lender will provide you with details on how to set up an account, manage your loan, and make payments.
Auto Loan Calculator
See how much car you can afford with our auto loan calculator; plug in your details, and you can see how big your monthly payments will be at different terms and interest rates.
Say you take out a loan for a new 2023 Ford F-150 Platinum with the following details, for example:
- Car price: $64,915
- Down payment: $5,000
- Loan amount: $59,915
- Loan term: 72 months
- Credit: Fair (601–660 credit score)
- Interest rate: 7.14%
- Total paid over the life of the loan: $73,837.72
With those terms, you’d have a monthly loan payment of $1,025.52. If you were to make a larger down payment, such as $8,000, you could take out a smaller loan ($56,915), and your monthly payment would be $974.17. You’d pay less overall: $70,140.59 over the life of the loan.
In the News: Auto loan rates are related to the Federal Reserve’s benchmark rate—if the Fed rate goes up, average auto loan rates usually will, as well. Today’s interest rates are pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation.
Though the Fed held its benchmark rate steady for a second consecutive meeting on Nov. 1—after 11 hikes in the previous 12 meetings—it has indicated that an additional increase is still on the table. If the Fed implements a further increase, auto loan rates could rise as well.
Auto Loans: Pros and Cons
Pros
- Provides access to a car: If you need a car to get to work or school and can’t afford to buy one with cash, an auto loan can give you that access to the transportation you need.
- Spreads out the expense of a vehicle purchase: Even if you have enough cash to buy a car, auto financing spreads out that expense, so you don’t deplete your savings all at once.
- You’ll own the car: Your lender technically owns the car while you pay down your loan, but once it’s paid off, you’ll own the car outright. New car leases can save you money with lower monthly payments, but there’s no vehicle ownership.
- Flexible loans: Auto loans can offer flexibility with loan amounts and repayment terms to help fit into your budget.
- Can help build credit: Like other installment loans, auto loans can be used to build credit as you make on-time monthly payments.
Cons
- Interest rates can be high: Auto loan rates are lower than what you can expect from a personal loan or credit card. But if your credit isn’t in great shape, you can still end up with a high interest rate, which could make monthly payments unaffordable.
- Vehicles depreciate: While you’re paying down your loan, the value of your vehicle is depreciating. If the vehicle’s value is less than what you owe on your loan, you may have to pay the difference when you sell the car or if the vehicle gets totaled in an accident.
- Can damage your credit: If you miss a payment by 30 days or more, it could damage your credit score significantly.
- Default can result in repossession: If you fail to make payments for a longer period, your lender could repossess the vehicle and sell it to recoup the remaining loan balance. If there’s a deficiency after the sale, you may still be on the hook for that debt.
Where Are the Big Banks?
We included big banks like Chase, Capital One, Bank of America, and U.S. Bank in our review of the auto loan industry, but these financial institutions don’t always make our “Best” lists.
Why? Although these banks are reliable and used by millions of people, they usually don’t offer the very best rates and terms. Online banks and lender marketplaces tend to have lower operating costs, and can pass those savings on to borrowers. Big banks tend to score well in our rankings, but they don’t usually come out on top when it comes to auto loan interest rates, flexibility in terms, and accessibility.
Frequently Asked Questions
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Not everyone qualifies for the best auto loan rates. Here are some things you can do before and during the application process to tip the odds in your favor:
- Check your rate with as many lenders as you can (within a short timeframe).
- Pay down your existing debt, especially credit card debt.
- Check your credit reports and fix any errors before you apply for a loan.
- Use your loan pre-approval offers to negotiate a lower rate with the dealership.
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There is no overall minimum credit score you’ll need to qualify for an auto loan. It depends on the lender; each lender has its own credit requirements. In general, if you have good or excellent credit (670 or higher), you’ll qualify for the best auto loan rates. See the best car loans for bad credit if you’re dealing with a lower score.
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You can obtain an auto loan through a dealer in a dealer-arranged financing agreement or directly from an online lender, credit union, or traditional bank. Some dealers also offer in-house financing for car buyers with bad credit.
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Ultimately, the best time to buy a car is when you need one. But if you have some flexibility, experts recommend the following times:
- The end of the month, quarter, or year: Car salespeople often have to meet quotas for each month, quarter, and year, so they may be motivated to make a deal toward the end of those periods to ensure they make the cut.
- Three-day weekends: Dealerships often run sales events for President’s Day, Memorial Day, Labor Day, and other three-day weekends. The same goes for other holidays, such as the Fourth of July and Black Friday.
- The end of the model year: Dealers may offer deals to get rid of inventory and make way for the latest model. Research when new models are released for the car you want and see if it can help you with negotiations.
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According to Experian, the average rates for the first quarter of 2023 were 6.58% for new cars and 11.17% for used cars. Your rate will vary depending on your credit score, income, and other factors.
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For the first quarter of 2023, the average interest rate for all used cars was 11.17%, according to Experian. Here’s the average loan interest rate for each credit score range:
- Super prime: 6.79%
- Prime: 8.75%
- Near prime: 13.28%
- Subprime: 18.55%
- Deep subprime: 21.32%
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A good interest rate for a 72-month loan can vary depending on the type of vehicle you’re buying, your credit, and your financial profile. Rates for superprime borrowers with the best credit can be as low as around 5%, while borrowers with poor credit can pay upwards of 14%. That said, long-term auto loans typically have higher interest rates compared to shorter terms, such as three or four years. If you can afford a higher monthly payment, consider a shorter term to save money.
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An 800 credit score is considered to be a superprime credit score. According to Experian, interest rates for prime borrowers in the first quarter of 2023 were 5.18% for new cars and 6.79% for used cars.
However, your interest rate will also depend on your income, credit history, debt, and other factors.
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Banks and credit unions use different credit scoring models for different purposes. Auto loan borrowers are typically scored using an auto-financing-specific version of a FICO score, such as FICO Auto Score 8 or 9. These scoring models differ slightly from those used to evaluate applicants for loans or credit cards; instead, they’re specifically designed to help lenders determine how likely a borrower is to pay back an auto loan.
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Yes, you can sell your car even if you still have a loan outstanding. When you sell the vehicle, however, you’ll need to pay off the loan. If you trade in your car at a dealership, the dealer will handle the process on your behalf. Otherwise, you’ll need to do it on your own.
If your car is worth less than the amount you owe, you may be able to roll the deficiency balance into a new loan through a dealer. But if you sell your car to a private party, you’ll typically need to come up with the cash on your own.
You can trade in leased vehicles, as well. If the vehicle is worth more than the buyout price, you can use that difference as equity when trading in the vehicle at dealerships.
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Having your dealer arrange financing on your behalf can save you some time, but it could result in a slightly higher interest rate. On the other hand, applying with multiple banks and credit unions on your own could help you find a lower interest rate, but it’ll take more time and effort.
To determine the right path for you, consider the benefits and drawbacks of each option and your priorities.
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We researched and reviewed 21 companies to find the best seven lenders you see on the list above. While we write individual reviews for most companies, we do not always write reviews for companies we would not recommend. Below are the companies we researched along with links to individual company reviews to help you learn more before making a decision:
Alliant Credit Union, AUTOPAY, Bank of America, Capital One, CarMax, Carvana, Chase Auto, Consumers Credit Union, Credible, First Tech FCU, LendingClub, LendingTree, LightStream, NASA FCU, Navy Federal Credit Union, OpenRoad Lending, PenFed, PNC Bank, U.S. Bank, USAA, Vroom.
Other Types of Auto Loans
Methodology
Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points for a period of over two months across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs. We also conducted a survey of 1,016 auto loan borrowers for attitudes and opinions about lenders and the loan approval and disbursement process.
Why You Should Trust Us
Investopedia collected 1,176 key data points from 21 companies across three months to identify the most important factors for readers choosing an auto loan. We used this data to review each company for interest rates, loan requirements, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999, and has been helping readers find the best auto loans since 2020.
