Loan Education
Auto Loans: How to Get the Best Rate and Drive Away Happy
To get the best auto loan rate, check your credit, get preapproved by a bank or credit union before visiting a dealer, choose the shortest term you can afford, and negotiate the car's price separately from the financing.
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How auto loans work
An auto loan is a secured installment loan: the vehicle is the collateral. You repay a fixed amount each month over a set term, commonly 36 to 72 months. If you stop paying, the lender can repossess the car.
Where to get an auto loan
| Source | Pros | Cons |
|---|---|---|
| Banks | Relationship discounts possible | Can have stricter requirements |
| Credit unions | Often competitive rates | Membership required |
| Online lenders | Quick comparisons | Varies widely |
| Dealer financing | Convenient; manufacturer promotions may be available | Dealer may mark up the rate |
Step-by-step: getting the best rate
- Check your credit. Review your reports and score before you shop.
- Set your budget. Include insurance, fuel, maintenance and registration — not just the payment.
- Get preapproved with one or more lenders. This gives you a benchmark rate.
- Shop rates within a short window. Credit scoring models typically treat multiple auto loan inquiries within a short period as a single inquiry.
- Negotiate the vehicle price first, then discuss financing.
- Ask the dealer to beat your preapproval. If they can, great; if not, use your own.
- Read the contract carefully before signing.
Choosing a loan term
| Term | Monthly payment | Total interest | Risk |
|---|---|---|---|
| Shorter (36–48 months) | Higher | Lower | Lower |
| Longer (72+ months) | Lower | Higher | Higher chance of owing more than the car is worth |
Watch out for
- Add-ons rolled into the loan, such as extended warranties or protection packages you didn't ask for.
- Focusing only on the monthly payment instead of the total cost.
- "Yo-yo" financing, where a dealer later says your financing fell through.
- Rolling negative equity from your old car into a new loan.
Should you put money down?
A larger down payment reduces how much you borrow, lowers your payment and helps prevent owing more than the car is worth.
Compare auto loan offers in the Loan Comparison Tool, and learn more about borrowing in Loan Education.