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How to get the lowest interest rates on car loans?

19.04.2021
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6 min.

In case of car loans a vehicle purchased by a client serves as a collateral, thus, a loan is positioned as secured. You can pay within the period from 24 to 84 months at a fixed interest rate. Car loans are provided by various national banks, local credit unions and online companies and most dealership centers offer their own financing as well.

How to get the lowest interest rates on car loans?

Note! Financial products regarding car loans are generally more favorable than unsecured loan options (personal loans). Current interest rates for new vehicles purchase range from 3.24% to 13.97% as well as for used cars buying from 4.08% to 20.6%. The interest rate depends on a client's credit rating.

How Can You Choose a Lender?

After making a decision to purchase a vehicle you should study several offers of different lenders as they can have different ways of loan approval, interest rate setting and loan terms and conditions.

Note! A client's credit rating is the main figure of the rate offered. This means in case payer's reputation is high a lender can offer lower interest on the loan. Moreover, a borrower can claim a larger amount and choose more suitable terms and conditions of its repayment.

Please note that a longer repayment period will lead to low monthly payments and slightly increase the applicable interest rate.

In order to determine choice of a lender it is convenient to use the pre-approval service as it allows you to assess all possible offers regardless a credit rating, compare them and choose the most profitable one.

Set of Papers

You will have to provide a set of papers in order to apply for a car loan that include:

  • vehicle data (including the sales agreement, registration and brand of the vehicle);
  • income statement;
  • driver's license;
  • proof of residence.

After funds receiving it is important to adhere to the payment schedule and avoid any delays.

Who Can Offer Most Favorable Terms and Conditions for a Loan?

You can save more than $1,000 when repaying the loan in case of choosing a lender wisely. The following lenders and brokers make attractive offers on interest rates and have other benefits:

Consumer Credit Union

Unions are formed according to various criteria (for example, military servants, graduates of a certain high school or the same state residents). Borrowers prefer credit unions due to their lower interest rates on loans in comparison with banks. Everyone who has an account with a credit union is basically its co-owner. Therefore, its members have the opportunity to make profitable transactions.

Important! A CCU member has to pay a fee of $5 and have funds on a savings account (at least $5). If such terms and conditions are met you can apply for the interest rate on a loan from 2.99%. The fixed interest rate, auto service coverage and simple interest method make it possible to pay less.

However, it is not easy to get relevant approval under such wonderful terms and conditions. Applicant's credit rating has to be at least 640 and each application submitted will be followed by a rigorous credit check.

Oportun

Oportun is an online lending service available to all applicants with the credit rating of 500 and the income from $2,000 per month. Funds provided by the service vary from $5,000 to $35,000. You can obtain a loan for buying an inexpensive vehicle from individuals or use refinancing services.

Oportun does not practice rigorous credit checks. In the USA, where this service is available, you should take advantage of such a good offer.

Capital One

Capital One being a large financial institution offers to prequalify for lending using Auto Navigator.

Such options are valid for more than 12,000 dealers in various states and each is represented on the Capital One website.

OpenRoad Lending

OpenRoad Lending provides different refinancing services allowing you to save about $100 on a monthly basis. Applications are submitted online and a client gets a response with the relevant decision and detailed information about the offer available within an hour.

If you have any problems with an application you can contact client support service.

Important! Interest rates offered by the service start from 1.99%.

Karvana

Carvana is an online service allowing you to choose a vehicle, apply for a loan and (if approved) purchase this car. Moreover, this service will help you exchange your old vehicle for a new one by taking the old one from your home.

Important! Anyone with an income of more than $10,000 per year may use the resource's services. Minimum credit rating is not taken into account. The loan calculator available on the resource will help you calculate the loan amount that can be afforded.

Lending Tree

Lending Tree is focused on the selection of lenders. You just need to visit its website, enter data about the desired type of loan, initial payment, financial situation and the chosen car.

For the clients who want submit applications the service provides free credit calculator services, credit rating search, etc.

Lending Club

The Lending Club known as an online service for providing peer-to-peer personal loans has expanded its business and now offers various services for refinancing car loans. After completing the preliminary application you will see various instant offers. You can choose the scheme that will lower the interest rate, extend the repayment period, etc.

Important! Lending Club is a broker which does not charge a fee for providing a loan. The offered interest rates are from 3.99%.

What Do Loan Rates Depend on?

Interest rates on car loans are determined by the following factors:

  1. Client's creditworthiness (it is a combination of borrower's credit rating, payment history, income and previous vehicle purchases);
  2. Type of vehicle (new or used);
  3. Loan duration;
  4. Current market rates.

The lowest rates are usually offered by credit unions. A rate of less than 5% is considered to be a really good offer.

How Can You Get the Best Offer for Car Loans?

In order to get offer for car loans you need to follow the steps:

  • check several offers (including credit unions and dealers);
  • improve your credit rating by complying with the payment obligations on time;
  • have a consistent income with a low debt-to-profit ratio;
  • carefully study promotional offers of sellers.

The loan rate may be discussed. Negotiations can be held with a dealer and a lender.

It is possible to agree on some changes in the terms and conditions of the loan. For example, to defer the first payment by 3 months or repay the loan for 50 months instead of 40. The success of the negotiations will depend on the client's overall financial reliability.

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