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The Best Auto Loans

Comparison of the best auto loan providers in the U.S.

Best Overall Auto Loans

AUTOPAY offers quick, convenient and low-interest auto loans and refinancing opportunities to drivers.

Best Credit Union Auto Loans
PenFed Credit Union Logo

The Pentagon Federal Credit Union, better known as PenFed, is a federal nonprofit credit union that offers a wide range of financial services and benefits to its members, including auto loans and car insurance discounts.

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Between banks, credit unions, online lenders, car manufacturers and dealerships, it’s hard to know where to finance your vehicle and who the best providers are. That’s why we’re here. Below, we’ll break down the best providers based on interest rates, loan terms, preapproval features, refinancing options and more.

Summary of the Best Auto Loans

  1. 1.

    Best Overall Auto Loans: AUTOPAY

  2. 2.

    Best Credit Union Auto Loans: PenFed Credit Union

  3. 3.

    Best Auto Loan Rates: LendingTree

  4. 4.

    Best Auto Loan Bank: Bank of America

  5. 5.

    Best Private Party Auto Loans: myAutoloan

Comparison of the Best Auto Loans

Auto loan provider Annual percentage rate (APR) minimum Loan terms in months Loan amounts Availability Better Business Bureau (BBB) rating
AUTOPAY 1.99% 24-96 $2,500-$100,000 All 50 states and Washington, D.C. A+
PenFed 3.44% 36-72 N/A All 50 states, Washington, D.C., Guam, Puerto Rico, and Okinawa A+
LendingTree 0.99% 12-96 Up to $4 million or max loan-to-value ratio of 125% Every state except Iowa plus Washington, D.C. A+
Bank of America 3.89% N/A $7,500 minimum ($8,000 in Minnesota) Every state and Washington, D.C A+
myAutoloan 1.90% 36-84 $8,000 minimum Every state except Hawaii and Alaska plus Washington, D.C. A+

Detailed List of the Best Auto Loans

1. Best Overall Auto Loans - AUTOPAY

What We Like Most:

  • Low minimum APR of 1.99 percent
  • Loan amounts range from $2,500 to $100,000
  • No minimum credit score required

AUTOPAY has helped more than 700,000 customers obtain auto loans, find better premium rates for existing loans, benefit from cash-out refinances, improve their credit scores and more. The auto loan aggregator has been around for nearly two decades and has formed a network of trusted lenders to match your specific needs and financial situation. With low rates, a simple online process, a soft credit check preapproval process and other key benefits, AUTOPAY is our top auto loans pick.

ProsWho It's Best For
  • pro
    People who need co-signers
  • pro
    Drivers who want to refinance their auto loans
  • pro
    People who want longer loan terms
  • pro
    Individuals who prefer loan aggregators
ConsWho It's Not Best For
  • con
    Someone who wants to work with a provider outside of AUTOPAY’s network
  • con
    People who don’t want to manage their auto loans through an online service

Cash-Out Refinancing Opportunities

AUTOPAY has refinanced hundreds of thousands of loans since it started in 2007, including cash-out refinancing loans. Cash-out refinancing is a way for you to pay off your existing loan, lower premiums and earn some cash in the process. When you qualify to cash-out refinance, you’re replacing your existing loan with a new one. When your lender pays off your old loan, you’ll be left with the difference in cash.

For example, if you owe $10,000 on an existing loan and your vehicle is worth $20,000, you could refinance your loan for $10,000 worth of equity. If you got a new loan for $20,000, your lender would pay you the $10,000 difference in cash. You could then spend that money to invest, pay off credit card debt or whatever else you needed it for.

Keep in mind that if you have a low credit score, you’re nearly done paying off the loan, or you’re driving a vehicle over 10 years old, your interest rates could increase. Be sure to speak with an AUTOPAY representative when considering options for cash-out refinancing.

Low Rates

AUTOPAY’s APR minimum (1.99 percent) is the third-lowest on our list and among the lowest in the industry. APR is often a better way to assess your costs than interest rates because it calculates your interest rates plus any additional fees, including:

  • Closing costs
  • Document preparation fees
  • Lender fees
  • Loan application fees
  • Origination fees
  • Points fees

It’s especially important to ensure you secure a low APR if you have a longer loan term. The longer your term, the more those interest rates will accrue over time.

Great Benefits and Features

AUTOPAY offers a myriad of benefits when you sign up for an auto loan, refinance your vehicle or buy out your lease. If you have low credit or find yourself in a tight financial situation, these benefits can help you in the following ways:

  • Co-sign your loan: If you don’t have a great credit score or income, you could add someone to co-sign your auto loan. If your co-applicant has a better credit score and financial history, you could get a better rate on your auto loan.
  • Soft pull application process: During the application process, AUTOPAY will perform what’s called a soft pull (also known as a soft inquiry). A soft pull, unlike a hard pull, is a credit check that does not affect your credit score in any way. AUTOPAY will only run a hard pull credit check when you choose an offer to submit to a lender for approval.
  • Vehicle service contract option: Add an AUTOPAY vehicle service contract, otherwise known as an extended warranty, to get coverage for maintenance, repairs and roadside assistance.
  • Automatic payments: As the name suggests, most of AUTOPAY’s in-network lenders offer automatic payments, which will help ensure you make all of your payments on time.
  • 30-day lender period: After you’ve received an offer, it will stay valid for 30 days.
  • Flexible minimum and maximum loan amounts: Because AUTOPAY works with hundreds of lenders, you can find loans for as low as $2,500 and as high as $100,000.


You can build your credit by paying your bills on time, reducing any outstanding debt, opening an account for a secured credit card (a card that you back with a deposit) and keeping your old credit accounts open, even if you aren’t using them.

2. Best Credit Union Auto Loans - PenFed Credit Union
PenFed Credit Union Logo

What We Like Most:

  • Minimum APR is 3.44 percent
  • Loan terms available anywhere from 36 to 72 months
  • Average monthly savings is $334.17

As a nonprofit credit union, PenFed is owned and controlled by its members, not its shareholders. That means its 2.8 million members know that profits earned by the credit union will go back to its members in the form of better rates, more saving opportunities and improved services.

PenFed was formed in 1935 and has grown to gain more than $36 million in assets, making it the second-largest credit union in the United States.1 Although PenFed has special offers to military members, like a 2 percent cash back purchase program, you don’t have to be a part of the military to become a member.

ProsWho It's Best For
  • pro
    Military members
  • pro
    People living in U.S. territories
  • pro
    People who want gap insurance
  • pro
    People who want debt protection
ConsWho It's Not Best For
  • con
    People who don’t want to pay a fee to become a PenFed member
  • con
    People who don’t want to manage their auto loans online or via mobile app (PenFed has a limited number of physical locations).

Flexibility for New and Used Loan Options

With PenFed, you can obtain or refinance an auto loan on both new and used vehicles, both of which come with their own unique rates, loan amounts and terms. Whether you want a more affordable plan with a used vehicle or the latest tech that comes with a new vehicle, PenFed will have you covered.

Here is what you can expect for a rate for a new car:

Plan type 1 2 3 4 5
Minimum APR 5.39% 5.49% 5.54% 5.84% 6.74%
Loan term in months 36 48 60 72 85
Loan amount $500-$150,000 $7,500-$150,000 $10,000-$150,000 $15,000-$150,000 $20,000-$150,000
Approximate monthly loan payment $609.77 $472.53 $389.23 $334.85 $300.40

And here’s what a used car loan plan would look like:

Plan type 1 2 3 4
Minimum APR 6.04% 6.14% 6.14% 6.24%
Loan term in months 36 48 60 72
Loan amount $500-$150,000 $7,500-$150,000 $10,000-$150,000 $15,000-$150,000
Approximate monthly loan payment $609.77 $472.53 $389.23 $334.85

Exclusive Member Discounts and Services

On top of great auto lane rates and loan repayment terms, PenFed members can take advantage of several discounts and benefits linked to their memberships. Some of these discounts and services include:

  • Gap insurance that you can help finance with your PenFed auto loan
  • Roadside assistance and bumper-to-bumper coverage for breakdowns
  • An average of about $4,000 savings off the manufacturer suggested retail price (MSRP) for a new car
  • Free TrueCar price reports
  • Up to 20 percent off on Seguros Multiples car insurance for members living in Puerto Rico
  • Car rental discounts with National Car Rental (up to 20 percent) and Alamo Car Rentals (up to 25 percent)
  • Exclusive PenFed discounts when you sign up with Travelers car insurance

TrueCar Partnership Discounts

When you purchase a vehicle through TrueCar, PenFed’s car-buying service, you get exclusive discounted APRs and dollar bonuses based on what kind of car you purchased. Here’s what your discounts with a TrueCar purchase would look like:

Car Type APR Loan term in months
New 4.59% 36
New 5.04% 60
Used 5.54% 60
Used 5.99% 72

Here are the cash-back benefits you could earn based on the manufacturer:

Manufacturer Cash-back bonus maximum
Audi $2,000
Ram $500
Jeep $500
Mercedes $1,000
Dodge $500
3. Best Auto Loan Rates - LendingTree
LendingTree Logo

What We Like Most:

  • Lowest minimum APR of 0.99 percent
  • Loan amounts of up to $4 million, depending on provider
  • Refinancing available

Similar to AUTOPAY, LendingTree is an online aggregator and marketplace where customers can match and compare auto loans from a variety of banks, lenders and other credit partners. If you aren’t sure what kind of financial institution you want to receive an auto loan from, LendingTree is a great hub to find a variety of loans, rates and contracts. It’s also the cheapest provider on our list. Its minimum APR (0.99 percent) is among the lowest rate in the country.

ProsWho It's Best For
  • pro
    People who want to compare multiple auto loans
  • pro
    People who want to manage their auto loans online
  • pro
    People looking for the lowest APR
  • pro
    People with any credit score, as there are no credit requirements
ConsWho It's Not Best For
  • con
    People living in Iowa
  • con
    People who don’t want to search through aggregators

Competitive Rates

If you’re seeking the lowest rates for your auto loan, look no further. LendingTree’s partners have APRs as low as 0.99 percent, which is the lowest rate on our list and one of the lowest in the U.S. The APR on a new, financed vehicle was about 6 percent in the last quarter of 2022, so LendingTree’s cheapest rates are a considerable drop if you can qualify for the minimum APR.2

Rates will vary based on provider, the cost of your vehicle, your credit report, loan terms and other variables, so be sure to shop around and speak to a representative to find the best deals. Here are the five best auto loan providers on LendingTree’s directory (as of January 2023):

Provider Minimum APR Loan term in months Loan amount
Southeast Financial 1% 12-84 From $12,000
Navy Federal 4.54% 36-96 N/A
PenFed 4.59% 36-84 $500-$100,000
Consumers Credit 4.94% Up to 84 Up to $150,000
Bank of America 5.29% Up to 72 From $7,5003

Flexible Auto Loans

Because LendingTree is an auto loan aggregator, you can choose among several providers with a wide range of interest rates, loan terms, loan amounts, car types and more. You can benefit from the highest loan amounts (up to $4 million) and the widest loan term gap (12 to 84 months).

With longer loan terms and higher loan amounts, you can customize your auto loan to fit your financial needs. Here are a few ways you can take advantage of longer loan terms for your auto loan:

  1. Lower premiums: If you sign up for longer loan terms, expect your monthly payments to be more affordable. This is a good option if you’re looking for an auto loan on a tight budget.
  2. Expensive vehicles become more affordable: Longer loan terms also make it possible to afford more expensive cars. You can either pay $700 on a $60,000 vehicle over 84 months or $5,000 for a 12-month term for the same vehicle.
  3. Rebuild your credit: Longer loan terms can help you build your credit score over time. You can earn a high credit score with consecutive on-time payments over time, which makes it easier for you to access credit in the future.
  4. Lower interest rates: Interests tend to drop when you extend your loan terms. The longer your loan term, the lower your interest rates.

Options for Drivers With Low Credit

LendingTree is a good option for drivers with low credit scores. With LendingTree, you have a variety of ways of securing low-interest loans by adding a co-signer or making a large down payment. On top of that, LendingTree will perform a soft credit pull when you make a request for a loan, so you don’t have to worry about your request affecting your credit score.

You can reference Experian’s quarterly auto loan rate and credit score averages when shopping for your own loans:

Credit score New car average APR Used car average APR
781-850 2.96% 3.68%
661-780 4.03% 5.53%
601-660 6.57% 10.33%
501-600 9.75% 16.85%
300-500 12.84% 20.43%4,/sup>


Auto loans are the third largest credit consumer market in the U.S., with more than 1.4 trillion in outstanding debt.5

4. Best Auto Loan Bank - Bank of America
Bank of America Logo

What We Like Most:

  • Minimum APR is 3.79 percent
  • Loan amounts start around $7,500 to $8,000, depending on state
  • Discounts of up to 0.50 percent for Platinum Honors members

Bank of America was first founded in 1904 as The Bank of Italy in San Francisco. One name change and a century later, Bank of America has grown into the second-largest bank in the U.S. and one of the most trusted financial institutions in the country.6 With Bank of America, you can enjoy a swift application process, low-to-medium average interest rates and the financial backing of one of the largest institutions in the country.

ProsWho It's Best For
  • pro
    People who want a one-stop shop for financial needs
  • pro
    Bank of America Preferred Rewards members
  • pro
    Existing Bank of America members
  • pro
    People looking for shorter terms
ConsWho It's Not Best For
  • con
    People with cars cheaper than $7,500
  • con
    People who have low account balances

Bank of America Customer Perks

One simple way to decide on a provider for an auto loan is to check out the customer benefits with your bank. Bank of America offers interest rate discounts and membership opportunities for existing customers, making your auto loans cheaper and more appealing. Here’s how you can save and benefit from Bank of America as an existing customer with Preferred Rewards membership discounts:

Tier Account balance minimum Interest rate discount
Gold $20,000 0.25%
Platinum $50,000 0.35%
Platinum Honors $100,000 0.50%

Streamlined Buying Process

Bank of America has a fast and convenient application process that can get you an auto loan and a vehicle in a matter of minutes. You don’t have to pay a fee to apply, and typically you’ll get a response on your loan within 60 seconds.

If Bank of America approves your application, it will send you an approval code that you can relay to a car dealer in Bank of America’s car dealership network. That dealer will have all of your information automatically and the necessary paperwork needed to streamline your car purchase.

Bank of America has thousands of authorized dealerships in its network, so you’ll have plenty of dealerships to choose from.

Excellent Financial Strength and Credit Ratings

It’s important that you apply for a loan from a trusted organization with a strong financial rating. Banks with high credit ratings are more likely to borrow money at lower interest rates and less likely to default on their debt and investments. As a customer, this means you don’t have to worry about Bank of America meeting its financial obligations and can benefit from cheaper interest rates.

As early as November 2022, Moody’s awarded Bank of America with an Aaa Prime rating, which is the highest possible credit rating.7

5. Best Private Party Auto Loans - myAutoloan
myAutoloan Logo 2023

What We Like Most:

  • APRs as low as 1.90 percent
  • Not all lenders require down payments
  • No minimum credit score

If you’re looking to purchase a vehicle from a private party, as opposed to a dealer or manufacturer, you’re going to need a private party auto loan. Not all auto lenders give loans for private party car purchases, so it’s important to understand your options, as they are more limited. MyAutoloan offers your standard new and used car loans, lease buyouts, auto refinancing and private party loans. It has a simple and fast system that will allow you to compare four quotes in a matter of minutes.

ProsWho It's Best For
  • pro
    People looking for cheap interest rates
  • pro
    Someone with a low credit history
  • pro
    People who want a marketplace to shop from
  • pro
    People who want soft credit pulls
ConsWho It's Not Best For
  • con
    People who live in Hawaii or Alaska
  • con
    People with vehicles worth less than $8,000

Automated Comparison Generator

MyAutoloan makes comparing loans easy with its quick, seamless and automated system. It has a fast and free application system that generates four quotes automatically to compare within minutes of submitting your application.

Here’s how it works:

  1. Fill out a short and secure 2-minute application form:
  2. Get matched to myAutoloan’s lenders (up to four loans to compare).
  3. Receive your online check or certificate within 24 hours.
  4. Use your check to buy your new car or refinance your loan.

Free Interest Generator

Unsure if you can afford a private party loan or what your rates will be? Take advantage of myAutoloan’s free tools and charts:

Although the calculators don’t guarantee your APR, they’re a good way to get a ballpark estimation of what your costs might be.

Here’s how a private party loan compares to other types of auto loans in myAutoloan’s existing network of lenders:

Term lengths in months 36 or less 37-60 61-72 73-84
New car 5.59% 2.69% 5.04% 5.79%
Used car 5.84% 2.94% 5.29% 6.04%
Auto refinance 2.49% 2.49% 2.99% 3.49%
Private party 4.75% 3.99% .4.75% 5.155
Lease buyout 2.49% 2.49% 2.99% 2.59%


Your actual interest rates might be higher based on your unique credit situation. If you request a loan through myAutoloan, the lowest rates offered that day may be higher or lower than what is displayed above.

No Hidden Fees or Additional Costs

MyAutoloan doesn’t charge any application fees or hidden fees. Hidden fees include any costs not associated with the loan terms or APR. Some of the most common hidden fees you might find with a dealership or manufacturer include:

  • Application processing fee
  • Origination fee that is usually a small percentage of the loan amount
  • Prepayment penalty for paying off your loan early
  • Title and registration fee when purchasing the vehicle

MyAutoloan mentions that some of its lenders may charge a fee, but all fees will be disclosed in your loan terms. Be sure to closely read the terms and conditions of your loan before accepting it, and you can always ask a representative to point out any hidden fees in your contract.


  • Direct provider consultation: We take information directly from providers to learn the ins and outs of their organizations, including their rates, optional add-ons, availability, discounts, lending partners, minimum credit scores and more. Our team members have worked with dozens of lenders and aggregators to get you the most reliable information on their plans, policies and procedures.
  • Independent rating systems: We rely on third-party rating systems to evaluate the financial strength, customer satisfaction and customer service ratings of auto loan providers. Moody’s, BBB and Trustpilot publish ratings, reviews and credit scores to help us get the most accurate information on lender financial scores and customer care quality.

How Do Auto Loans Work?

Auto loans, like mortgage loans and other types of loans, involve making a down payment on a car, borrowing enough money to pay off the rest of the car and paying back what you owe over a period of time (with interest).  Lenders make a profit by charging customers application fees and accruing interest over time.

One of the most important aspects of an auto loan is your credit score. The lower your credit score, the higher your risk is as a lender and the higher your interest rates will be. Some lenders even require a credit score minimum for you to be eligible to apply. If you have low credit, it’s still possible to get an auto loan, but you may have to show:

  • A minimum of six months at your current job with at least three years of no major working gaps
  • List of six to eight personal references
  • Proof of income of at least $1,500 to $2,000 a month from a single source
  • Proof of residency
  • Working phone

Auto loans are also considered secured loans, which means you as the borrower provide the lender with some form of collateral. In the case of auto loans, the car itself is your collateral. If you default on your loan, your lender can repossess your vehicle.

Your credit score, income, loan term and other key factors all determine your loan rate, which we’ll break down more closely below.

Types of Auto Loans

There are two major auto loan types: direct financing and dealership financing. In this guide, we went through most of the direct financing institutions and organizations you can request a loan from, such as credit unions and banks. Let’s look at some of the key differences and pros and cons of each option.

Direct vs. Dealer Financing

Loan structure Direct Dealership
Payment Pay dealership with a loan from a bank Pay off the car in monthly installments to the dealership directly
Can you compare loans and shop around for the best rates? Yes No
Pros Can choose between providers More convenient and cheaper for those with good credit
Cons You have to find your own lender Hidden fees and additional costs

Dealer Financing


When you work directly with a dealership, the dealer will act as the intermediary and connect you to a bank or another lending institution.

Dealer financing pros:

  • Convenient as you don’t have to find a lender yourself

Dealer financing cons:

  • Can’t shop around and compare loans for the best rates

  • Dealership may have application fees and hidden costs

Captive Finance

If you sign up for a loan through a manufacturer, you may end up working with its in-house financing division, otherwise known as a captive finance company or subsidiary. Some automakers with captive finance divisions include Ford Credit and GM Financial, which can help you finance both new and used cars.

Captive finance pros:

  • Often have great incentives, like 0 percent APR

Captive finance cons:

  • May only be available to those with high credit scores

Buy Here, Pay Here

Buy here, pay here refers to an auto loan that is financed in-housed by a car dealer, so the lender and auto dealer are the same as opposed to a dealer finding connecting you with one of its lender partners.

As you’re buying your car, you can ask your dealer to see how large of a loan you’re eligible for. If you qualify for a loan, the lender will put a device on your car that will disable/locate your vehicle if you don’t pay your premiums on time.

Buy here, pay here pros:

  • Good for people who have subprime credit

Buy here, pay here cons:

  • Highest interest rates

  • Many fees

Direct Financing


With banks, you can get preapproved for multiple loans, compare rates and enjoy discounts and benefits if you’re an existing customer.

Bank auto loan pros:

  • Low-interest rates with good credit

  • Backing of large financial institutions

  • Membership benefits like no-fee applications and interest rate discounts

Bank auto loan cons:

  • Limited by the type of car ― some banks won’t finance old cars or cars with high mileage

Credit Unions

Credit unions, like PenFed or the Navy Federal Credit Union, are nonprofit organizations and good alternatives to banks if you can qualify for membership.

Credit union pros:

  • Lower interest rates than banks (in general)

  • Good rates even if you have bad credit

  • Lower fees, for example, as of the end of 2022, the average credit union APR for a 48-month used car loan was 4.79 percent, compared to a 5.86 national average with banks.8

Credit union cons:

  • Regular banks have more services available

  • May not offer mobile apps/online services, which might make managing your auto loans more difficult9

Online Lenders

Online lenders have a marketplace of auto loan providers for you to choose from and you can manage the process 100 percent online.

Online lender pros:

  • Easy to compare several rates

  • Lenders are more willing to work with people with subprime credit

  • Could get lower interest rates (compared to banks) if you have good credit

Online lender cons:

  • May have higher interest rates for subprime borrowers

  • Customer service could be inconsistent ― be sure to check BBB, Yelp and other third-party customer service rating websites

How to Get an Auto Loan

What to Know Before You Apply for an Auto Loan

Information You’ll Need for the Application Process

  • Your credit or FICO score
  • W-2 or recent pay stub
  • Government ID
  • Proof of residence, often a driver’s license, utility bill or something similar

Good Interest Rates for Auto Loans

Average national rates are around 7 percent, although they can range from less than 1 to 36 percent.

How Lenders Determine your Rate

Lenders will consider the following factors when determining your rates:

  • Bankruptcies in the past seven years
  • Birth date
  • Credit score
  • Current employer
  • Desired loan term
  • Employment status
  • Job titles
  • Loan amount
  • Total liquid assets
  • Vehicle make, model and year
  • What you could offer with a down payment
  • When you started working
  • Whether the car is new or used
  • Yearly income pretax, plus any other income, such as alimony or child support

How to Compare Auto Loans

When choosing between auto loan types and providers, consider the following:

  • APR
  • Term length
  • Discounts
  • Penalties like prepayment or late payments
  • Down payment requirements
  • Application fee
  • Add-ons
  • Customer service ratings
  • Dependability and trustworthiness; refer to third-party ratings from BBB, Trustpilot and Moody’s, among others.

How to Apply

Get Preapproved

The first step in the application process is getting your preapproval. To get preapproved, you can start by choosing a lender to apply to. You can choose between:

  • Banks:
    • Chase
    • Wells Fargo
    • Bank of America
    • Citigroup
    • PNC
  • Credit unions:
    • PenFed
    • Navy Federal
    • Alliant Credit Union
    • Boeing Employees Credit Union
  • Online lenders:
    • Capital One
    • Up2Drive

During the initial preapproval phase, lenders will run a soft credit pull, which won’t affect your credit score (unlike a hard credit pull). Meanwhile, hard credit pulls can lower your credit score by a few points because they indicate you’re applying for new credit. One or two hard credit pulls won’t affect your credit score significantly, but too many in a short period of time could lead to higher rates.

After your soft credit pull, you’ll learn some basic information like the chance of approval and likely interest rates. You shouldn’t apply unless you get preapproved. Continuing to apply with a formal loan application can lead to a hard credit pull, which will hurt your credit score.

Try to get preapproved with multiple lenders to see your best loan terms. Keep in mind that not all lenders offer preapproval and, sometimes, you have a specific car in mind to apply for preapproval.

Get Your Down Payment/Trade-in

You have two options for your lump-sum payment: a down payment or a vehicle trade-in.

If you’re going with a down payment, you’ll pay cash to the dealer/lender to cover a portion of the car’s cost. The higher your down payment, the less likely you are to default and the lower your rates/premiums will be.

If you’re trading in a vehicle instead of a down payment, you can exchange any valuable car in exchange for credit towards the price of the car. Trade-ins only work if you’ve already paid off loans on the car that you’re trading in. If you have negative equity (owe more on the car than what the trade-in offer is), you’ll need to pay the difference to the lender when you buy your car.

Be sure to check out trusted resources like Kelly Blue Book or Edmunds Car Value to determine the value of your car for a trade-in. If you’re using an online value index, you’ll need to input your:

  • Make
  • Model
  • Vehicle identification number
  • License plate
  • Year
  • ZIP code10


Car trade-ins are generally more convenient than finding a buyer on your own, but they probably won’t get you as much money as a private buyer.

How to Get the Best Rate on Your Auto Loan

Regardless of what kind of provider you end up applying to, you can use the following tips to lower your rates:

  1. Improve your credit score.
  2. Shop the markets and aggregators.
  3. Make a large down payment.
  4. Get prequalified before you apply.
  5. Check out manufacturer pricing options.
  6. Consider a used car.

How to Refinance

Refinancing your vehicle can help you decrease interest rates, get better terms, lower your monthly payments and improve your credit score. You can follow these steps if you’re looking to refinance your auto loan:

  1. Get prequalified.
  2. Apply for your loan.
  3. Determine how much you can save with the new rates and monthly payments.
  4. If your new loan has better conditions and terms, sign the contract.
  5. Send your new loan provider the title transfer documents.

Auto Loan Alternatives

Pay in Cash

If you have the ability to, paying for a car upfront in cash is the cheapest option. You don’t have to worry about interest rates, APR or any hidden fees.

However, if you’re pulling cash out of an investment account, you will be losing its interest and dividends. You should only pull cash from an investment account if your car interest care is going to be higher than your investment return rate. In other words, if your auto loan interest rate will cost you more than you’re earning from your investment, it’s worth it to use the investment to pay for your car in full.

Home Equity

Using your home equity to pay for a vehicle is essentially another form of collateral. You can pay a single sum, home equity loan or home equity line of credit. Home equity loans can have lower interests, and a portion of your interest may be tax deductible if you itemize your deductions (capped at $100,000).

However, if you do default on your loan, you run the risk of losing your home.

401(k) Loan

Not all 401(k) plans can be used for car loans. If your plan does allow you to borrow cash for auto loans, then your lost earnings and repayment will come directly from your paycheck.

If you lose your job or the terms of your 401(k) change, you may have to repay your balance in full within 60 days. If you can’t pay off the loan, you could get taxed or charged withdrawal penalties. Additionally, you have to pay back the 401(k) loan with interest.

Credit Card

You can always use a credit card draft or cash advance to finance your vehicle. Credit card drafts work like personal checks, but they often come with very high-interest rates that could get higher with time, making them one of the worst ways to finance your car purchase.

Frequently Asked Questions

Is it better to get a car loan through a dealership or a bank?

Whether you should finance your car with a bank or dealership will depend on what you’re looking for and your individual circumstances.

Dealership loan pros and cons:

  • You get the convenience of working through their partnered lender.
  • Your interest rates will be lower if you have good credit.
  • Your lender options will be limited.

Bank loan pros and cons:

  • If you’re an existing customer, you can take advantage of membership discounts and benefits.
  • You’ll have more options to choose from within your bank’s existing network.
  • You might have a limited amount of car types to choose from.

Is a 72-month car loan a good idea?

A 72-month car loan (six-year loan) is a good idea for people in the following situations:

  • You want an expensive vehicle: Longer loan terms mean you can spread out the monthly payments of a costly vehicle, helping you afford it in the short term.
  • You’re on a budget: Longer loan terms generally come with lower monthly payments, which is good if you’re in a tight financial situation.
  • You want to refinance your vehicle: Long loan terms give you the option to refinance your vehicle and generate some extra cash if you need it.

How fast will a car loan raise my credit score?

When you start making on-time payments back for your loan, expect your credit score to start increasing within 60 to 120 days. Building a history of on-time payments and maintaining your loan for longer periods of time can increase your credit score.

What is a reasonable monthly car loan payment?

According to Experian, the average monthly car payment for a new vehicle was $644 in 2021. Financial experts recommend spending no more than 10 to 15 percent of your monthly income on your car payment. So, if you make $4,000 a month, a reasonable car payment amount would be about $400.


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