Auto Loans

When someone needs to buy a car but they don’t have all the necessary cash, they need a car loan. A car loan, also known as a vehicle loan, auto loan, or car finance loan, is financing that is borrowed by consumers to purchase a new or used vehicle.

Qualified borrowers get money from auto loan lenders in exchange for monthly payments with interest until the borrowed money is paid off.

You can apply for a car loan using the form to the left. Your personal information will be securely and safely used to match you with a partnered lender. If you would like to learn more before applying, please read on or explore the articles, frequently asked questions, and news stories found below.

Types of Car Loans

To the untrained eye, car loans can seem all the same but in fact there are different kinds as well with different uses.

New and Used Car Loans

Most people use car loans to purchase brand new vehicles at car dealerships. Just as easily but a little less often, people borrow car finance loans to buy used cars from private parties. Unlike brand new cars, used vehicles can either be purchased at used car dealerships or from private sellers.

Assuming an applicant qualifies for a car loan, they are then able to approach the dealership or seller of their choice and conduct the proper car evaluation. For most people, this means a test drive and comparison between several types of vehicles that they’ve had their eyes on. Once a car is selected, the borrower then gets to pay the seller with funds from their vehicle loan and becomes the vehicle’s official owner.

Auto Refinance Loans

When existing borrowers feel that they are either paying too much or that they would qualify for a lower interest rate, they can try to refinance their car loan. Refinancing is essentially trading one car loan for another, but with improved terms for the borrower.

What this means is that they want another lender to buy out their debt and offer new terms. This works by paying the original car loan’s remaining balance off with funds from a new, more favorable auto loan.

Since refinancing allows borrowers to make lower monthly payments, they get to use the money they save for other purchases or uses.

In order to be approved for a refinance, borrowers should have a favorable credit score or have improved their debt-to-income ratio since the time they first purchased their vehicles. Their debt still needs to be analyzed along with their personal financial information and lenders can deny any applicant that has a low credit score or any other number of red flags.

Still though, refinancing a car loan is one of the best ways people can save money. After all, cars almost always depreciate in value, so it makes sense to save money when one can. 

Unconventional Vehicle Loans

There are a wide range of automotive vehicles beyond the typical car, truck, van, or SUV.

These unconventional vehicles are often in demand by buyers who need financing just as much as car and truck buyers do.

Here is a list of some of the vehicles that can be purchased using unconventional vehicle loans.

  • Classic Cars: These older vehicles can be quite expensive, and many times a collector or interested buyer will seek out a lender who can offer financing. Some cars are even so valuable that they act as investments since they will never be remade by their manufacturers. 
  • Recreational Vehicles: RVs, which combine the comfortability of a home with the mobility of a vehicle, often have price tags as massive as their widths and lengths. Naturally, this often necessitates the need for financing. 
  • Motorcycles: From Harleys to Hogs, these two-wheeled vehicles, along with dirt bikes, can be purchased using motorcycle financing, which is both rare and specialized since motorcycles can prove quite costly despite their relatively small size.
  • Scooters: Eco-friendly and a popular choice among college students and urban residents, these moderate- to slow-speed two-wheeled vehicles are another mode of transportation that people can finance. 
  • Buggies: Outside of urban areas, rural consumers can borrow unconventional auto loans so they can buy buggies, off-road vehicles, and even neighborhood electric vehicles in order to more easily commute in their specific environment.

Not all auto loan lenders offer these kinds of unconventional financing. Since these vehicles are rare, financing to purchase them is only found at certain specialized lenders. Borrowers will need to find local or online lenders who cater to financing unconventional vehicles.

How to Qualify for an Auto Loan

In order to obtain financing, applicants need to meet a lender’s qualifications.

Some of the more common qualifications include:

  • Credit Rating: Borrowers must have a credit rating that is acceptable to their lender. Not all lenders are willing to give money to borrowers with fair to poor credit scores. That being said, some lenders do specialize in bad credit car loans.
  • Income: Lenders can only lend out vehicle loans to borrowers that prove they have a source of income, or else there will be no way to repay. Income can come in the form of employment, retirement, benefits, social security, and other sources.
  • Down Payment: Even though many car finance lenders offer no-down-payment options or plans, they can get quite expensive. Offering a down payment not only shows a lender that a borrower is responsible, but it typically results in a lowered interest rate. Down payments may even be mandatory for vehicle loan borrowers with bad credit or no credit.
  • Debt: People under heavy debt will have a hard time getting car finance loans. However, since some lenders work with subprime applicants, debt isn’t always an automatic disqualification and rather it has more to do with the amount of debt that applicants carry.
The Need for Co-signers

In the event that an applicant still can’t get approved for a vehicle loan, they can improve their chances with a co-signer.

With the help of a co-signer, applicants improve their chances for car loan approval since a lender will hold a co-signer equally responsible for repaying the car loan. This reduces a lender’s risk and makes them more willing to hand money over to a prospective borrower.

For most lenders, a co-signer with an excellent credit history satisfies their fears. However, should the primary borrower fail to make payments, then the lender can pursue the co-signer for repayment.

An example of a typical co-signer relationship is when parents co-sign on car loans for their children. This usually helps first-time teenage buyers secure a loan since parents often have stronger credit scores than their children.

People who have had bankruptcies and who currently have bad driving records may find co-signers to be a necessity for approval as well.

Borrowing While Having Debt

Most everyone has had debt at some point in their lives, be it from college, credit cards, or a mortgage.

Debt in and of itself is not a disqualification from getting a car loan, but it does play a role in how much interest a lender will charge. After all, an applicant with a lot of debt will probably be a riskier investment than someone without any financial responsibilities since those with pre-existing debt are already burdened with bills to begin with.

One of the most common types of debt that applicants have is student loan debt, which has been on the rise year after year.

Fortunately, there are student car loans for people that have debt built up from attending a university or college. College student auto loans typically aren’t enough to purchase very expensive cars, but lenders do tend to view recent college graduates as upcoming young professionals who will earn higher income for the rest of their lives thanks to their degrees.

Costs and Terms

The cost of a car loan namely comes down to its interest rate. Interest rates are calculated based on a variety of factors, which include:

  • A borrower’s credit score
  • A borrower’s debt-to-income ratio
  • The amount of the money that a borrower’s desired vehicle costs

Applicants with excellent credit scores are in prime position to receive the lowest interest rates. However, the opposite is true for someone with poor credit or no credit.

People with high debt-to-income ratios will find it difficult to get approved for car loans. This means that they have a high level of debt compared to how much money they earn each year. Lenders won’t be willing to give money to someone who is already struggling to pay off other types of loans.

Prospective borrowers who need a large amount of money for an expensive car or vehicle will have a harder time getting lender approval. This is because there is greater risk in investing into one expensive car purchase rather than a car purchase that cost less money. Also, an expensive car requires more of a lender’s budget to cover the cost of the high priced auto loan.

By using free calculators online, prospective borrowers can determine the affordability of a car loan and see how much they would be paying over time at different interest rates. Prospective borrowers can also apply for car loans through multiple lenders in order to compare rates before choosing an offer.

Car Loan Terms

Average interest rates for car finance loans tend to change each month, but for individual borrowers, their interest rate will be determined by their personal financial history and the term’s length.

Below are the most common car loan term lengths. In effect, prospective borrowers should look at them as the number of payments they will need to make before the cars they purchase are paid off.

  • 24 month
  • 36 month
  • 48 month
  • 60 month

Usually, the longer the terms on a car finance loan contract, the more money a borrower will pay in interest. However, longer terms also lead to lower monthly payments.

Pre-Qualifying for a Car Loan

Many people get a car finance loan right after they finish picking the car they want to own. However, through pre-qualification, borrowers can get financing for a vehicle before even setting foot on a dealership.

In order to get pre-qualified for a car loan, borrowers should first gather up their personal financial information and then meet with a lender. In discussions with a lender, borrowers should explain how much they want to borrow and be prepared to negotiate. If borrowers reach an agreement, they can then go car shopping and completely bypass the need for the dealership’s financing department.

Getting pre-approval for a car finance loan is, in essence, getting a guaranteed car loan. This way, consumers can avoid the often high-pressure sales tactics of finance departments.

Deciding where to get pre-qualified has just as many options as deciding where to get a vehicle loan in general. The three main options are dealerships, banks and credit unions, and online brokers, each of which has its own costs and benefits like all lenders for car loans.

Dealerships

The main benefit of dealerships is the convenience factor.

As car buyers are well aware, they can get financing the very same day they finish test driving and deciding upon a car. However, dealerships are often notorious for their high pressure sales tactics and aggressive drive to get customers to agree to high interest car finance loans.

Dealerships also rarely give multiple offers to customers since they typically only have one inside finance company or financial division. In contrast to this, outside financing can and often does feature multiple offers from multiple lenders, at least for online car finance loan lenders.

Outside financing is itself a broad category covering online lending websites, but also other more traditional lenders such as banks and credit unions.

Banks and Credit Unions

While banks will typically lend, or at least listen to, anyone that enters their doors, credit unions require membership in order to use their services or in this case to borrow a vehicle loan.

However, credit unions, being member owned and lacking the more aggressive investment strategies of banks, tend to offer lower interest rates and better terms. This isn’t true for every situation, simply the majority of the time and for most circumstances.

At both a credit union and a bank, applicants for car loans will still need to go through the same process of underwriting before being denied or approved for financing.

That process is generally expedited under the final option, online brokers.

Online Brokers

Online brokers, as their name implies, operate exclusively online through websites.

Even though they do not operate face-to-face, online brokers still conduct proper underwriting on all car loan financing applications and conduct email correspondence. Even though they may seem smaller than banks, credit unions, and dealership finance companies, online brokers still offer the same amount of services albeit just through a website.

This can be a very fast method to get a car loan since online programs can rapidly process an applicant’s financial data and match them with multiple lenders or offers. They are also very convenient since borrowers can submit their information to them anytime of the day.

However, no matter which type of lender a prospective vehicle loan borrower decides to go with, there will always be a level of risk involved when borrowing money.

Risks Involved

Just as with any type of financing car loans carry a level of risk.

Here is a list of the risks that vehicle loan borrowers can face if they begin to miss payments continuously.

  • Credit Score Damage
  • Lawsuit
  • Cosigner Pursuits
  • Repossession
Credit Score Damage

Borrowers who miss payments are reported to credit score monitoring agencies and subsequently get their credit scores lowered. This can have ramifications the next time tardy borrowers wish to obtain financing, even if it is not for another car.

For example, a car finance loan borrower who misses several months’ worth of payments will find it both difficult and awkward explaining to a loan officer how trustworthy and reliable he is when he wants to get a mortgage for a starter home.

Lawsuit

Lenders can take borrowers to court if they begin to be late on payments and show no action to repay their vehicle loans. Of course, this is a costly and time consuming course of action but it can still result in a judgement against a borrower meaning they have to pay even more money now to cover the cost of what they borrowed.

Cosigner Pursuit

Borrowers who got help from a cosigner, and cosigners themselves, should understand that if payments are not made then the cosigner can and will be pursued for the owed money. It is important to keep in mind that co-signers are legally as responsible for repayment as borrowers.

Co-signers should not be surprised if they start receiving calls from a lender or lawyer if the borrower stops making payments. After that, co-signers should be prepared to see their wages garnished.

Repossession

Just as people who do not repay their mortgages can get their homes foreclosed upon, car finance loan borrowers who do not make their monthly payments can end up getting their cars repossessed.

When a car is repossessed, the lender takes ownership of it by force and can legally confiscate it from the vehicle loan borrower, who ceases to be the legal owner. The only way to avoid repossession is to pay car loans on time. 

Of course, people often face difficult times in life, so speaking with an auto loan lender in order to work out a temporary lowered monthly payment can be the best way to avoid a car repossession or any other time of repercussion.

Leasing a Car

Not everybody feels comfortable taking on debt to own a vehicle. People who enjoy upgrading often for newer models, who want to avoid making payments on a rapidly depreciating possession, or who simply do not want to deal with financing a loan may instead opt to lease a vehicle.

When consumers lease a car, they are essentially renting the vehicle and not buying it. They pay a set fee each month and as long as they pay and abide by their lease’s terms, they can continue driving the vehicle.

Once the terms of the lease are up, consumers have the option of extending their current lease or upgrading to a newer model. For some people, this arrangement can make more sense than borrowing a car loan, but the primary drawback of leasing a vehicle is that a leasing consumer never obtains vehicle ownership or builds up equity to cash out on in the future.

Auto Title Loans

When researching auto loans and their lenders, be sure not to confuse information you find about auto title loans. While they sound very similar, auto title loans are actually very different products.

Auto title loans are a type of secured loan in which a car or other type of vehicle acts as collateral so that a lender can give money to a title holder.

For example, a truck owner will offer up his truck as collateral to a lender. The lender will estimate the value of the car and offer the truck owner $2,000. The truck owner agrees and gets the $2,000.

If the truck owner doesn’t repay the auto title loan, then the borrower’s truck, which was collateral in the agreement, becomes repossessed by the lender.

Auto title loans are great options for people in need of a loan but whose only source of collateral is their vehicle. The amount of money that a borrower receives depends on the value of their vehicle as assessed by the auto title loan lender. However, the terms and interest rate are determined by the creditworthiness of the borrower. Since auto title loans are generally for people with poor credit or no credit, they often carry high interest rates regardless of an applicant’s income.

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