The 7 Best Auto Loans and Rates

Auto loans are a thriving business in the United States, with an estimated $1.37 trillion in outstanding auto debt as of 2021. Cars are becoming more expensive, too, as the average loan balance was nearly $20,000 last year. Getting a loan on a new or used car is easier now than ever before, but it can be a confusing process to navigate, no matter how many times you've done it.

Beyond selecting the right lender and navigating the financial process, you have to find a car and negotiate a price. Through all of that, you’ll need to keep an eye on your credit score and work to get the best rate. Our auto loans overview will help get you started in the right direction.

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The Auto Loans Process

An auto loan, like any other loan, starts out with an application to a bank or other lender. Just like getting a mortgage, however, we recommend that you check your credit score and get preapproved before heading to a dealership. Knowing where you stand ahead of time will give you a stronger position to negotiate when you walk in and will let you know how much car you can actually afford before starting the process.

Once you’ve applied for a loan on a car or through a pre-approval process, you’ll be given either an approval or a denial with a reason. If approved, the lender will propose an interest rate, loan term, monthly payment, and other requirements, such as a down payment. If you’ve decided to borrow through a dealership and have a car already picked out, the process is nearly complete, as you’ll sign the paperwork, make your down payment, and drive off in your new car. If you’ve only completed the preapproval process, you’ll still need to select a car and negotiate a price with the dealer, but having your loan approved and ready to go ahead of time will save you tons of time in the finance back office.

Key Auto Loan Terms

APR: APR refers to the annual percentage rate of your auto loan. Unlike the advertised interest rate that you see in your local dealer’s advertisements, APR includes fees and other charges.

Down Payment: Down payment is the amount of money you are able to pay up front to reduce the amount you need to borrow for an auto loan. Making a larger down payment means taking a smaller loan and having lower monthly payments as a result. A larger down payment also means you will ultimately pay less in interest, over the life of the loan, since you are borrowing less money from the start.

Trade in: When you buy a new car, dealers give you the option of trading in your old car to cover part of the costs of buying. If your old car is worth $10,000 and the new car is worth $20,000, your trade-in would reduce the cost of the new car to $10,000. You can view the value of your trade-in almost like cash as a down payment.

Loan Term: A loan term is the length of time the bank gives you to repay your loan, and is usually expressed in months instead of years.

Monthly Payment: Your monthly payment is the amount you send to the bank each month to satisfy your loan payments. A portion of your payment applies to the loan principal and a portion of the payment covers the loan’s interest.

Principal: Principal is the amount that you actually borrow to pay for a car, before interest. If your car is $15,500, you’ll pay that amount - the principal - plus interest, fees, taxes, and other charges.

Total Cost: Total cost is the total amount you end up paying for a car, including taxes, interest, fees, and any other charges you accrue along the way.

Where Should I get my Auto Loan?

Online Lenders

Applying for and obtaining a loan online has never been easier. Organizations such as MyAutoLoan, LightStream and others offer loans online that can be approved and funded within 24 hours, making it easy to buy a car without stepping foot into a bank.

Banks

Banks are a popular option for auto financing and offer several lending products to accommodate customers of all types. Many smaller community banks run loan specials or offer promotional rates to attract customers, which can make them an attractive option for many.

Credit Unions

Credit unions are nonprofits and are more customer/member-centric than banks in many ways. Choosing a credit union generally means better customer service, available financial education programs, and sometimes lower rates.

Dealer Financing

Many dealers, especially franchised new-car dealers, offer in-house financing. While it may be branded as coming from the dealer, in most cases they are working with a bank to provide financing. A great example of this is Chrysler Financing, which is run by Santander Bank.

Auto Loans from Online Lenders

LightStream

Lightstream is an online division of Suntrust Bank that offers quick loan decisions and funding as quickly as 24 hours after approval. The site can deliver great rates and wonderful service, but their lending offerings are best for people with good credit. The bank issues funds and advises customers to pay for their new vehicle as if it were a cash transaction, which makes it much easier to shop for and select a vehicle.

Pros and Cons

  • Quick decisions and loan funding
  • Enables cash purchasing for a car
  • All-online operation makes it easy to apply and get approved
  • Excellent choice if you have good credit
  • Best rates are reserved for top-tier credit customers
  • Minimum credit score eliminates all but the “best” borrowers
  • No pre-approval - application requires a hard credit check

Read our full review on LightStream Auto Loans here.

MyAutoLoans

MyAutoLoans is a marketplace that submits a borrower’s application to several lenders at once to find the best rate or most likely approval. The site offers services for loans, refinancing, lease buyouts, and more, and can deliver an approval in as little as 30 seconds. Borrowers are presented with multiple loan offers from one application, which can make it quick and easy to shop around.

That said, the company’s loans are restricted to an $8,000 minimum, so you won’t be able to finance a cheap car with MyAutoLoans. Additionally, customers in Alaska and Hawaii are out of luck, as the company does not offer lending products in those two states.

Pros and Cons

  • Fast approvals
  • Ability to compare offers from up to four banks at once
  • Discounts available
  • Offers loans for people with a variety of credit backgrounds
  • May be overwhelming to receive so much information at once
  • Not open to borrowers in all states
  • Customer support not as strong as others

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Auto Loans from Banks

Capital One

Capital One has grown into one of the most prominent and popular auto loans providers in the country. Its Auto Navigator tool offers an easy-to-use app and an interface that makes it simple to understand the process of taking and receiving loan funds and a new vehicle. Capital One works directly with a network of dealers, so you’re limited on where you can shop. The good news is that the bank’s app shows cars that fit your pre-approval and payment requirements, so you’ll be able to find the right model for you.

The quality of Capital One’s technology is part of the driving force behind its convenience and ease of use. The app is straightforward and makes logging in a breeze, and when the process is complete, loan decisions and preapproval information are presented clearly.

Pros and Cons

  • Excellent app and interface
  • Easy-to-understand payments and loan parameters
  • Huge network of approved dealerships
  • You can only shop with the bank’s dealers
  • Pre-approval only applies to select dealers, making it difficult to negotiate
  • Not an option for buyers in every state

Read our full review on Capital One Auto Loans here.

Santander

Santander auto loans is a division of the larger Santander bank in Spain. Though it does not offer refinancing, buyouts, or loans to cover auto purchases from private parties, Santander does the “dirty work” for Chrysler as their in-house financing arm. If you’re buying a new Chrysler, Dodge, Jeep, Ram, or other related vehicle, there’s a great chance that your loan will be handled by Santander. Despite its size and age, the bank doesn’t have the best track record with its customers, who have frequently complained of unresponsive or unhelpful service representatives.

Pros and Cons

  • Offers loans to borrowers with less than perfect credit
  • Simple application
  • Can be used with Vroom or through Chrysler
  • Spotty customer reviews
  • Some view lending practices as deceptive
  • Interest rates higher than the competition

Read our full review of Santander Auto Loans here.

Wells Fargo

Wells Fargo is one of the oldest and most established banks in the United States, but its most recent history has tarnished its reputation with customers and regulators. It is still a huge financial institution with a presence in all 50 states, so you’ll be able to bank with Wells Fargo no matter where you live. That’s the good news. The bad news is that Wells Fargo does not lend directly to consumers, and instead requires that borrowers work with one of its 11,000 network dealers to complete the deal. Once enrolled, you can view and interact with your account through the bank’s mobile app, however, so you’re not tied to the dealership for service or maintenance for the life of the loan.

Pros and Cons

  • Wells Fargo offers competitive rates
  • Buyers with poor credit can obtain loans
  • Fewer fees and no prepayment penalties
  • Does not lend directly to consumers
  • Does not offer refinancing or buyout options
  • Wells Fargo ranks poorly for customer satisfaction

Read our full review of Wells Fargo Auto Loans here.

Bank of America

Bank of America was the country’s largest bank for a long time, but has been surpassed by JPMorgan Chase & Co. That said, B of A is large enough that it can offer extremely competitive rates that its rivals cannot, and its catalog of loan products is more extensive than many other banks. Borrowers are not required to pay a fee for paying off their loan early, and the bank may offer interest rate discounts if borrowers meet specific criteria. On the downside, B of A’s discount programs heavily favor customers with large account balances and the bank has a minimum loan amount that is higher than others.

Pros and Cons

  • Discounts available for some Bank of America customers
  • Several loan options available
  • No ability to prequalify
  • Discounts only available to major B of A customers ($20,000 or more account balances)
  • Eligible dealerships are all franchise stores

U.S. Bank

U.S. Bank was founded in 1863 and is one of the largest banks in the United States today. The institution offers several lending and financial products, including consumer banking services, mortgages, credit cards, personal loans, and more. While many banks have loosened their credit policies to accommodate buyers with less-than-perfect financial backgrounds, U.S. Bank is one of the few that have maintained strict credit requirements. The bank’s base credit score requirement is 650, and borrowers must be at least 18 years of age to apply. U.S. Bank has not disclosed its other requirements, such as annual income. One big downside to financing a car with U.S. Bank is it charges prepayment fees for paying off your loan early. There are also late fees and other charges that some banks don’t have.

Pros and Cons

  • Consistent, easy-to-understand rates
  • Discounts for some account holders
  • Solid customer service
  • Somewhat strict credit requirements
  • Information not readily available on website
  • Prepayment fee may apply for early payoff

Small Local Credit Union

When it comes to auto loans, your local bank or credit union is hard to beat. Not only do you get a person to talk to when you walk in the door, but you may save money in the process. Local financial institutions, especially credit unions, sometimes offer promotional rates or special incentives for holding multiple accounts.

That said, opting for a smaller bank comes with challenges that you might not expect. Your local credit union may not offer weekend hours or phone support during off hours like a large bank. You may also find a limited number of loan products to choose from and might decide to look elsewhere.

Pros and Cons

  • Personal service and in-person problem resolution
  • Often offer better rates than national banks
  • Some offer discounts or rate reductions for holding other accounts or enrolling in autopay
  • May not offer the variety of products that a large bank canthis is the text of your list item
  • Operating and customer service hours may be limited
  • Options for phone or online account service may be limited

Average Auto Loan Rates for Quarter 1 2022

According to Experian, auto loan rates for the first quarter of 2022 varied greatly between borrower types.

Credit ScoreBorrower TypeAverage New Car RateAverage Used Car Rate

Compare Best Auto Loan Rates by Provider

LenderLowest RateLoan AmountLoan Terms

Read more on Average Auto Loan Rates here.

Reasons to Get an Auto Loan

New Car Loans

New cars are getting more expensive as time goes on, which can make it impossible for all but the most financially secure buyers to pay up front for a car. That’s why new car auto loans are so important. You may also find that new car dealers offer financing incentives or extremely low rates to attract business, which can make your loan much cheaper in the long run.

Used Car Loans from a Dealership

Even if you can afford to buy a used car outright, it can sometimes be advantageous to obtain a loan. Cash in the bank can be useful for other things, including investments, but it’s also smart to keep cash for emergencies. Taking out a small auto loan for a used car, and paying on it, on time, every single month can also boost your credit score.

Used Car Loans for Private Party Sales

While you may have to jump through a few more hoops to have a bank cut a check to an individual, paying for a private party sale with financing can save you the hassle and the stress of paying a person with a huge wad of cash or trying to navigate checks and wires.

Refinancing an Existing Auto Loan

If you received an auto loan at a time when your financial situation wasn’t that strong, you may have a higher interest rate than you want. You can refinance your car to obtain a lower interest rate, saving you money for the rest of your loan period. This can be a very smart move for your long term financial goals.

Read about How to Get Out of a Car Loan here.

Requirements for Applying for a Car Loan

Applying for a car loan isn’t brain surgery and it’s not all that difficult, but there are a handful of things you’ll need to get your application completed smoothly. Various lenders have different requirements, but in general, required documentation may include:

  • Driver’s license
  • Income statement/pay stubs
  • Co-signer, if required
  • Proof of residence
  • Proof of insurance
  • Trade-in information, if you have one

Top Factors Impacting Auto Loan Rates

When you apply for a loan, banks assess several factors to decide whether or not you’ll be a good borrower. Beyond playing a role in the bank’s approval or denial decision, your credit history is vital in the interest rate you end up paying. Major factors impacting auto loan rates include:

  • Your credit score and credit history: How committed have you been to paying off previous debts?
  • The type of vehicle you are buying: New cars are more likely to be eligible for promotional rates and long loan terms. Because of their assumed lower value and shorter lifespan, used cars typically carry higher interest rates.
  • How much money you can put down: The more you can afford to pay up front, the lower your interest rate will likely be and the more equity you will have in the car.

Read more about Average Auto Loan Rates here.

Getting an Auto Loan with Bad Credit

Keeping your credit score in tip-top shape is the best way to make sure you get the best interest rate, but everyone makes mistakes and it can be easy to lose track of your credit score. The good news is that you can still get a loan, quite easily in some cases. The bad news is that banks will charge you more for the opportunity. The other bad news is that you’ll likely be asked to make a sizeable down payment to lower the amount you will be borrowing.

As with anything, the best way to find the best auto loans for bad credit is to shop around. If you have bad credit, it may be tempting to jump at the first lender you find, but keep your eyes open to as many options as possible. That said, try to avoid applying at every bank you see, because more hard inquiries on your credit can further damage your credit score.

Read more about Bad Credit Auto Loans here.

Tips for Finding the Best Auto Loan Rates

There are several things you can do to improve your chances of getting the best rates on auto loans:

  • Know your credit score and where you stand financially.
  • Be prepared to make a sizable down payment.
  • Shop around and don’t immediately settle for a dealer’s financing options.
  • Look to local banks and credit unions for discounts. This is especially important if you’re a member or customer of a local institution.
  • Shop online for loans to find great rates at smaller banks. Even if you don’t live in an area, you can sometimes apply for a loan with a local bank remotely. Many smaller lenders offer great promotional rates, including special pricing for used cars.
  • Try to get pre-approval before you start shopping for your car. This allows you to go into a car dealership or used car lot with a set amount you know you can comfortably afford, and it gives you leverage, so you do not feel you have to settle for the dealer's in-house, high-rate financing.
  • Avoid “rolling in” negative equity from another vehicle, if at all possible. This happens when you owe more on your car than it’s currently worth. Some dealers can pencil the numbers in such a way that allows you to trade that car in, but you’ll end up paying the difference in what you owe combined with the new car’s price tag. If you’re borrowing money to do that, banks get nervous about lending more than a car’s value and may charge a higher interest rate.

Read more on Getting a Car Loans Without Hurting Your Credit here.

Read more on 10 Common Mistakes to Avoid When Getting an Auto Loan here.

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FAQ

Why is my auto loan interest rate so high?

Depending on your situation, your rates could be high for one of several reasons:

  • Your credit history shows problems repaying loans
  • You made no down payment
  • You are buying an older, higher-mileage car
  • You settled for a dealer’s in-house financing and didn’t shop around
  • You opted for an extended loan term
How does a low car loan rate save me money?

When you make an auto loan payment every month, a portion of that money goes to pay for the principal, or the actual balance of the car’s price. Another portion of the payment goes to pay for interest, or the amount of money the bank charges you for the ability to borrow money. The higher the interest rate, the more of your monthly payment that gets shaved off to pay the bank instead of paying for your car.

What is the best place to refinance an auto loan?

The best place to refinance your auto loan is the bank or lending institution that gives you the best rate and most favorable terms. Local banks and credit unions frequently offer promotional rates to attract more loan business, so you may find a great rate in your neighborhood. You can also shop around online to find all of the options available to you.

What credit score is needed for the best auto loan rates?

Most lenders consider people with credit scores of over 700 to be Tier 1, or their best borrowers. The lowest rates and most favorable terms are reserved for those people. Tier 2 borrowers usually have credit scores that start around 650, which is still a reasonably strong score. You can still find decent rates with Tier 2 credit. Read more on Average Auto Loan Rates here.

Do credit unions have the best auto loan rates?

Credit unions tend to offer great rates for their members, but they generally require that you also bank with them or hold accounts with balances, at the very least. This can be great if you planned on switching banks or moving to a credit union anyway, but it’s something to keep in mind before jumping in.

Can you negotiate auto loan rates?

You may have an option to discuss your rate with a lender, but your best bet is to shop around. Once you’ve received a pre-approval, you can take that to other lenders and compare the rates you are offered.

Editor's note and disclaimer: Car Talk is supported by our fans, readers and listeners. When you click on some of the links on our website, we may receive referral compensation. However, you should know that the recommendations we make are based on our independent editorial review and analyses.