An auto loan is a loan for the purchase of a vehicle when a car serves as collateral until the loan is fully repaid. A car loan involves a down payment and is typically issued for a period of 3-5 years.
Traditional and express car loans
Traditional car loan programs have low interest rates, usually not exceeding 9% per annum. Moreover, now some car dealerships offer loans even with a zero interest rate. However, applications for such loans are reviewed longer than usual and involve paperwork: an ID, SSN, driver’s license, proof of residence and income, and others.
In addition, you should bear in mind that you should typically pay a down payment of at least 50% in order to get an interest-free loan. At the same time, the repayment period is significantly reduced and the amount of various compulsory insurances is overestimated.
Express loans for the purchase of a car are issued much faster, but at the same time, they have higher interest rates (12-17% per annum). To get such a loan, you will only need to provide the lender with an ID, SSN or driver’s license, and car documents. You can apply for a car loan online via our online portal. We partner with the most reliable US lenders that offer affordable rates and convenient terms.
The total cost of a car loan includes a fee for processing a loan, a fee for maintaining an account, a fee for insurance, collateral agreement, additional commissions, monthly commission for maintaining a loan account, and some others. Almost all of these commissions are illegal and are easily sued.
If you decided to take an auto loan, you should clearly define your priorities when choosing it: the minimum total cost of a loan, no paperwork involved, the speed of applying, approval and funding. In accordance with this, choose the most preferable car loan program for you. At the same time, keep in mind that you can apply for a loan both in a car dealership and in a third-party financial institution.
In order not to get into a mess when buying a vehicle, experts recommend that you be guided by the following action plan:
- choose a loan program;
- decide whether you need insurance;
- choose a car and a car dealership in accordance with your preferences.
Car loan market programs
- Traditional lending (see above);
- Lending on a factoring scheme (interest-free payment by installments);
- Lending with a buyback option;
- Express lending (see above).
A car loan can be issued for a new or used car. In the second case, the loan will be more expensive. Sometimes, in order to get a loan, you need to provide a guarantor. But you always need full insurance for your future car and civil liability insurance.
At the same time, most often, the borrower is forced to use the services of the insurance company that partners with the bank or car dealership. And such insurance will certainly cost you 4-5% more expensive. So be sure to take this into account when calculating the total cost of an auto loan.
Car loan APR by credit score
Auto loan interest rates are based on credit score. For example
- 451 credit score – 17.08% for a new car, and 17.33% for a used car;
- 449 credit score – 18% for a new car, and 18.25% for a used car;
- 651 credit score – 11.69% for a new car and 11.94% for a used car;
- 701 credit score – 5.07% for a new car and 5.32% for a used car;
- 739 credit score – 5.07% for a new car and 5.32% for a used;
- 751 credit score – 4.98% for a new car and 5.23% for a used car.