How to Get Financing for a Car and Compare Loan Offers

Getting financing for a car can be a daunting task, but it doesn't have to be. You've already done your research and found a car you love, now it's time to figure out how to pay for it.

You have several options to consider, including dealership financing, bank loans, and online lenders. According to the article, dealership financing can provide a convenient and hassle-free experience, but be aware that the interest rates may be higher.

To get the best deal, it's essential to compare loan offers from different lenders. The article suggests using a loan calculator to compare rates and terms, and to check your credit score before applying for a loan.

By doing your research and comparing loan offers, you can find the best financing option for your needs and budget.

A fresh viewpoint: How Does Car Dealership Financing Work

Checking your creditworthiness is a crucial step in getting financing for a car. You can check your credit score for free from Experian, and it can be a major factor in whether you'll get approved for an auto loan and the interest rate you receive.

Your credit score can affect the average loan terms you receive. For example, according to Experian's State of the Automotive Finance Market report for Q2 2024, people with a super prime credit score (781-850) received an average loan of $39,172 with a 64-month term and 5.25% APR.

To check your creditworthiness, you'll need to provide personal and financial information, including your full name, Social Security number, date of birth, address, contact information, and income. You can also view your credit reports from Equifax, Experian, and TransUnion for free at AnnualCreditReport.com.

A good credit score can help you get a lower rate on your auto loan, which can save you thousands of dollars over the life of the loan. For example, a super prime credit score can get you a lower APR of 5.25% compared to a subprime credit score, which can get you an APR of 13.18%.

Here's a breakdown of the average loan terms based on credit score range:

Your credit score can also affect the interest rate you receive on a used car loan. For example, a super prime credit score can get you a lower APR of 7.13% compared to a subprime credit score, which can get you an APR of 18.86%.

Check this out: Car Financing Rates Good Credit

Determining your budget is a crucial step in getting financing for a car. You'll want to consider how your new auto loan will fit into your monthly budget before shopping for a car. Use Experian's car payment calculator to compare estimated loan offers based on how much you borrow, the loan's interest rate, and the repayment term.

Your debt-to-income ratio (DTI) is also important. Auto lenders typically like to see a DTI below 50%, but an even lower DTI could help you qualify for a better offer. Consider your other monthly debt obligations, such as student loans, mortgage payments, and minimum monthly credit card payments.

Here are some ongoing costs of car ownership to consider:

These costs can add up quickly, so it's essential to factor them into your budget. Additionally, consider your down payment and whether you'll have money from selling or trading in a vehicle.

To determine your budget, start by considering how much you can afford to spend on a car each month. You'll want to use Experian's car payment calculator to compare estimated loan offers based on how much you borrow, the loan's interest rate, and the repayment term.

A good rule of thumb is to keep your debt-to-income ratio (DTI) below 50%. This means that no more than 50% of your gross monthly income should go toward debt payments, including your car loan. But aiming for an even lower DTI could help you qualify for a better offer.

You'll also want to consider your down payment, whether you'll have money from selling or trading in a vehicle, and other ongoing costs of ownership, such as insurance premiums, fuel or electricity, maintenance, and repairs.

Here are some estimated costs to keep in mind:

Don't forget to factor in your initial down payment, which can be a significant upfront cost. Additionally, consider your monthly premium costs for car insurance, which may increase or decrease depending on the type of car you purchase.

To help with budgeting, consider using an auto loan calculator to estimate monthly car payments and determine how your down payment and interest rates may impact costs.

Take a look at this: Car Financing No down Payment

If you're planning to trade in your old car, do your research on its value first. You can check the National Automobile Dealers Association's (NADA) Guides, Edmunds, and Kelley Blue Book for this information.

It's essential to wait until after you've negotiated the best possible price for your new car to discuss the possibility of a trade-in. This way, the seller can't adjust the sales price of the car to make up for a generous trade-in offer.

Know what you owe on your old car - if you still owe money on it, trading it in might not help much. If you owe more than the car is worth, that's called negative equity, which can affect your new financing or lease agreement.

To give you a better idea of how trade-in values can impact your new car purchase, here are some key points to keep in mind:

If you have an existing relationship with a bank, check to see if you qualify for a relationship discount. Banks often have a wide range of auto loan options available.

Credit unions are another option to consider, offering lower interest rates than traditional banks. However, you must be a member to get approved for a loan, although you can join during the application process in some cases.

Online lenders let you apply from anywhere, making it easy to shop around for the best rates. Some marketplace websites even make it possible to get quotes from multiple lenders with just a single online form, with interest rates comparable to credit union rates.

Here are some types of financing options to consider:

Dealer-arranged financing can be a convenient way to get competing offers, but dealers can also mark up the rate, so you might get a better offer if you go directly to a lender. Captive financing offers from major manufacturers may include promotional offers like 0% intro APR, but you generally need to buy one of their new or certified pre-owned vehicles to qualify.

Banks can offer relationship discounts for existing customers, which can be a great perk. You can check with your bank to see if you qualify for this discount.

Credit unions often provide lower interest rates than traditional banks, but you'll need to be a member to get approved for a loan. Some credit unions may allow you to join during the application process.

Online lenders offer the convenience of applying from anywhere, and some marketplace websites can even provide quotes from multiple lenders with just one online form. This can be a great option if you want to compare rates quickly.

Dealer-arranged financing can be a convenient way to get competing offers, but dealers may mark up the rate, so you might get a better offer if you go directly to a lender. It's essential to shop around and compare rates.

Captive financing is offered by major manufacturers and can provide promotional offers like 0% intro APR. However, you typically need to buy one of their new or certified pre-owned vehicles to qualify.

For more insights, see: Financing Car Insurance Minimums

Here are some common types of lenders to consider:

Financing can be a daunting aspect of buying a car, but understanding your options can make the process smoother. You don't have to be a member of a credit union to get a car loan, as PenFed Credit Union offers membership to everyone. To become a member, you'll need to provide some basic information and open a savings account with a $5 initial deposit.

PenFed Credit Union offers loan terms ranging from 36 months to 84 months, but keep in mind that choosing a longer term may reduce your monthly payment but increase the total interest paid. If you're looking to get an idea of how much you may be approved to borrow, you can apply for preapproval through PenFed, which can give you an estimated loan rate and terms.

Chase offers a unique benefit for its Private Client members, who can get an interest rate discount. To qualify, you'll need to pay a $35 monthly service fee, have an average daily balance of at least $150,000 in qualifying deposit and investment accounts, or link to an eligible business checking account. Chase also doesn't require a down payment, but making one may improve your chances of approval, lower your interest rate, and reduce your risk of becoming upside down on your auto loan.

A different take: Trade in Car with Negative Equity and No down Payment

If you're looking for a competitive interest rate, consider a credit union. According to the data, credit unions offer lower interest rates compared to banks. Here's a breakdown of the average interest rates offered by credit unions and banks for different loan terms:

LightStream doesn't offer preapproval, but it does offer flexible repayment terms ranging from 24 months to 144 months. Additionally, LightStream has no restrictions on the model year, make, or mileage of vehicles it will finance, making it a great option if you're looking to buy an older vehicle.

Explore further: Lightstream Car Loans

LightStream and PNC Private Financing offer distinct features that can impact your car-buying experience.

LightStream doesn't offer preapproval, so you'll need to apply directly for a loan. This might not be ideal if you're unsure about your financial situation.

LightStream's repayment terms for private-party loans range from 24 months to 144 months, giving you more flexibility to choose a term that fits your needs.

LightStream has no restrictions on the model year, make, or mileage of vehicles it will finance, which can be helpful if you're looking to buy an older vehicle.

PNC, on the other hand, doesn't finance car models older than 2016.

To be eligible for a PNC loan, you must live in a state where PNC does business, so be sure to check their online appointment request form to see if you're eligible.

PNC branches are generally located in the Mid-Atlantic, Southeast, and Midwest regions of the U.S.

PNC offers private-party loan terms of 12 months to 84 months, giving you a range of options to consider.

Here's a comparison of the two lenders' private-party loan terms:

Getting prequalified or preapproved for a car loan can be a great way to determine if you'll likely get approved and compare estimated loan offers. You can do this by completing a preliminary application, which may ask about your income and credit, and may result in a soft credit inquiry that doesn't affect your credit scores.

Prequalification and preapproval are often used interchangeably, but a preapproval is generally the more complex and accurate option. This process may require submitting documents to verify your income and can result in a hard inquiry, which can impact your credit slightly. In contrast, prequalification is less involved and may not guarantee approval or provide the most accurate estimated loan offers.

Here's a comparison of prequalification and preapproval:

Getting prequalified or preapproved for a car loan can be a game-changer in your car-buying journey. You can do this by completing a preliminary application to find out if you're likely to get approved and see estimated loan offers.

Prequalifications and preapprovals don't obligate you or the lender to enter into a loan agreement. However, a preapproval is generally the more complex—and more accurate—option.

To get prequalified or preapproved, you'll typically need to provide personal and financial information, such as your name, date of birth, contact information, and Social Security number. Housing details, income and employment information, loan details, and trade-in information are also usually required.

For your interest: Prequalified Car Loans

Prequalifications usually result in a soft credit inquiry, which doesn't affect your credit scores. Preapprovals, on the other hand, may require a hard inquiry, which can impact your credit slightly. Preapprovals may also require submitting documents to verify your information.

Prequalified and preapproved car loans can help you determine how much you can borrow and whether you'll qualify for an auto loan. They can also help you identify and address any obstacles to getting a loan.

Here's a comparison of prequalification and preapproval:

Prequalified or preapproved offers are typically good for 30 to 60 days, and you can always decline your offer if the dealer can beat it.

If you're considering PNC for a car loan, you should know they don't finance car models older than 2016.

To apply for a PNC car loan, you need to live in a state where they do business. You can check if you're eligible by entering your ZIP code on their online appointment request form.

PNC branches are generally located in the Mid-Atlantic, Southeast, and Midwest regions of the U.S.

Here are some loan term options from PNC:

These terms are for private-party loans, and they can help you find a repayment plan that works for you.