Types Of Car Loans
In general, auto financing can be divided into two categories: purchase loans and refinance loans. A purchase loan is a loan taken out in order to purchase a new or used vehicle. Some lenders may work through dealerships to provide purchase loans, and others may offer to provide loans for private purchases as well.
There are also purchase loans for lease buyouts, in which drivers choose to purchase a vehicle after leasing it for an amount of time.
A refinancing loan is a second loan taken out to pay off an existing auto loan. The reason drivers may choose to refinance a loan is if the new loan offers a lower interest installment loans in Iowa locations rate, meaning that they will pay a lower overall cost.
People whose credit score or income has recently changed may be interested in a refinancing loan. Or, if you feel that your original loan has particularly bad terms, refinancing your loan with a better lender can save you money.
Many lenders allow borrowers to apply for an auto loan through an online application. In some cases, borrowers can receive same-day financing. Typically, to apply for an auto loan you will need to supply the following information:
- Personal details such as name, address, and age
- Social security number
- Gross annual income information
- Vehicle information such as vehicle identification number (VIN), age, and mileage
- Driver’s license
- Pay stubs
When you apply for a loan, some companies may offer you the opportunity to have a cosigner, another person who will assume responsibility should you fail to make your loan payments. A cosigner may be required for people with exceptionally poor credit.
As with personal loans and other forms of credit, many auto lenders offer a pre-qualification process that doesn’t ding your credit.
If you want to go into the negotiation with the upper hand, consider getting a pre-approval letter from a lender before you go to the dealership. With this, you can show the dealer you have full credit approval up to a certain amount, and that you’re a serious buyer.
Car Loan Rates By Credit Score
Auto loan interest rates go up and down all the time. So, the best auto loans might have different rates during one period than another. Below, you can see average auto loan rates for new and used cars by credit score that apply in the second quarter of 2021. This information comes from Experian’s State of the Automotive Finance ).
Of course, there is more to an interest rate than your credit score. You can find a lower rate if you are able to make a larger down payment, for example. This reduces the loan-to-value ratio and helps you find more competitive rates. Using an auto loan calculator can help you estimate your monthly payment and total loan ahead of time.
How To Find The Best Auto Loan Rates
When shopping for the best auto loans, you’ll get access to the lowest rates if you have a good credit score and financial history. The more money you have, the cheaper interest rate you will be offered. Customers with high credit scores, many assets (such as a house), and a high gross annual income will qualify for better rates.
- Pay your bills on time
- Pay off credit card bills in full each month
- Don’t take out many large loans
Building your credit score can take years, and many people may need an auto loan sooner than they can rebuild low credit. In the short term, you can find good loan terms by comparing offers from multiple lenders and by having someone with strong credit cosign your loan.