Shopping For A Car Start With Us
Buying the vehicle that compliments your lifestyle is important.
Whether its a high-powered sports car for your fast-paced personality,
or the family-friendly minivan you need for your growing family.
Bank of America can help you feel more in control on the road to buying and financing your next vehicle.
You probably spend plenty of time researching what vehicle you really want using our online auto shopping tool or other resources, but researching your auto financing is just as important.
There are many factors that can impact how much your monthly payment will be.
The auto financing process begins with being informed about the whole experience, and were here to make it as stress free as possible to help you get the auto financing you are looking for.
There will be three main stages to the process.
First, the Getting Started stage, when you can research vehicles and financing options, then apply for auto financing online, in-person, or over the phone.
Then, in the Loan Approval stage, you may work with a Loan Specialist to discuss the best terms for your financing, submit any additional documents needed, and if approved, close your purchase or refinance.
And finally, in the Servicing stage, when your financing is complete, youll receive your welcome package and first statement, and begin repaying your loan.
If youre not sure yet which vehicle might be a good fit for you and your budget, Bank of America can help with that too!
Type Of Car Youre Purchasing
Car manufacturers offer many incentives to lenders that make purchasing a new car actually easier than a used one. Used cars tend to actually be more expensive to finance.
The high resale value of new cars, comparatively, also tends to contribute to the better rates available for new car loans.
The make and model of the car will also impact the loans APR. The better the resale value of the vehicle in question, the better the fees associated with a loan will be.
Tips For Getting The Best Interest Rate Possible
The first thing youll need to do to land a great interest rate is plan ahead. Check your credit history and note the score. The higher the credit score, the lower your interest rate. After youve consulted our chart for a rate estimate, plan for the rate you want. Once you have a rate in mind, be prepared to negotiate if they offer you something higher than you expected. Make sure you dont become so focused on the interest rate that you overlook the rest of their offer. Pay close attention to the details.
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How Car Loan Interest Rates Workand How To Get A Good One
What constitutes a good interest rate on a car loan will differ per borrower.
The interest rates on auto loans depend on a variety of factors. Some of these, like the benchmark interest rates set by the Federal Reserve, are beyond your control. Other variables, however, are very much in your control. The most important one is your . Applicants with higher credit scores will qualify for loans with lower interest rates, all else being equal.
For example, the Experian credit bureau recently reported that the most creditworthy borrowers paid an average interest rate of 3.65% on a new car loan, while the least creditworthy paid an average interest rate of 14.39%.
One way to get a good interest rate on your auto loan is to improve your credit score. Two ways to do that are to make sure you pay all your bills on time and to keep your low. Your credit utilization ratio compares how much credit you are using at any given time with the total amount of credit available to you. If your credit cards are all maxed out, for example, then you will have a poor credit utilization ratio.
The length of your car loan also makes a difference. Car loans today often run from 24 months to 84 months . The longer the loan term you choose, the lower your monthly payments. But your interest rate is likely to be higher, and you will end up paying more interest in total over time.
What Is A Good Apr For A New Car
According to Experian, for the first quarter of 2021, the average loan rates by credit score range were:
The rate youll be offered can vary from lender to lender, so its important to shop around to ensure you get the best deal even if the first offer you receive is lower than average for your credit score range.
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Impact Interest Rates Have On Your Loan
When you finance a new or used car, your monthly payment goes partly toward paying down the loan principal and partly toward interest and fees. So the higher your interest rate, the higher your monthly payment will be.
To illustrate, say you want to borrow $20,000 to buy a used car. Your credit score is 658 just a few points away from the prime category and youre wondering if its worth it to take steps to build your credit before taking out the loan to qualify for a lower rate.
Lets assume youd qualify for a 10.43% rate with your current credit score and a 5.54% rate if you were able to boost your credit score by a few points. Heres how your monthly car payment and total cost of borrowing would change, based on a 60-month loan term.
The difference between a $382 monthly car payment and a $429 monthly car payment is only $47 per month. But over the course of a 60-month car loan, the higher interest rate would cost you a whopping $2,807 in interest.
How To Improve Your Credit Score
Knowing what counts as a good interest rate on a used car loan can help you prepare for the application process, but if your credit isnt where youd like it to be, you shouldnt give up hope. In fact, there are a few simple things you can do to improve your likelihood of securing a lower APR:
- Get a free copy of your credit report and check for errors that may be lowering your score.
- Pay off outstanding balances to improve your likelihood of getting approved.
- Build your credit by paying off small bills with your credit card and bringing the balance back to $0 each month.
- Its ok to make multiple applications within a short time period, but making too many requests will have negative results for your credit.
Remember that the deeper you fall into subprime territory, the easier it is for predatory lenders to take advantage of you! If youre near Fountain Hill or Philadelphia, making a larger down payment can help you avoid falling into interest traps.
Looking for more advice? Explore our car buying tips to get answers to common questions, or reach out directly for an expert opinion.
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Check Your Credit Report And Credit Score
Before applying for financing, get a free copy of your credit report. Review it for errors or inaccuracies that might lower your credit score and dispute them if necessary.
You may also want to check your credit score. If your score is close to the next highest tier, you may want to take steps to improve your score by a few points and improve your chances of qualifying for a lower rate.
Get Your Credit Into Shape
Before you head to a car dealership to try to get a 0% APR auto loan, you should check your credit reports and scores. Since your credit scores are calculated based on information in your credit reports, take a careful look at your reports to make sure everything is correct.
If something on your credit reports looks incorrect, you should dispute the error before you apply for your auto loan. Its important to check your credit reports from all three major consumer credit bureaus Equifax, Experian and TransUnion because you dont know which bureau your lender will use.
After youve verified that everything on your credit reports is correct, take a look at your credit scores. The VantageScore 3.0 credit scores you get on Credit Karma from Equifax and TransUnion probably wont be the credit scores your auto dealer uses. There are many different credit scores that different industries can use to help predict different things about your creditworthiness. But the scores you get from Credit Karma can be a good indicator of your overall credit health, even if they dont match up exactly with whichever scores your auto lender uses.
While lenders dont typically share what your credit scores should be in order to qualify for a 0% APR auto loan, credit scores of 700 and higher are typically considered good. A score of 720 to 750 or higher may give you an even better shot at getting approved.
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Examples Of Apr For Car Loans With Different Variables
As of January 2020, U.S. News reports the following statistics for average auto loan rates:
- Excellent : 4.93 percent for new, 5.18 percent for used, 4.36 percent for refinancing
- Good : 5.06 percent for new, 5.31 percent for used, 5.06 percent for refinancing
- Fair : 11.30 percent for new, 11.55 percent for used, 7.82 percent for refinancing
- Subprime : 17.93 percent for new, 18.18 percent for used, 16.27 percent for refinancing
- Deep Subprime : 25.05 percent for new, 25.30 percent for used, 19.47 percent for refinancing
Between Choosing A Make Model And Options Shopping For A Car Can Feel Overwhelming And Youre Not Done There Car Loan Shopping Is Just As Important And Knowing How To Calculate The Apr On An Auto Loan Can Help You Determine Whether A Loan Might Be Right For You
The more you know about how to calculate the APR on a car loan, the more informed youll be when its time to either sign on the dotted line or walk away if the loan doesnt fit your financial needs.
A car loans APR is the cost youll pay to borrow money each year, expressed as a percentage. It includes not only the interest rate on the loan but also certain fees. The interest rate, on the other hand, reflects only the annual cost of borrowing the money no fees included. When comparing loans, the Consumer Financial Protection Bureau suggests looking at APRs versus interest rates, because APR more accurately reflects how much youll pay to finance a car.
Lets take a look at how to calculate APR on a car loan using a computer spreadsheet program and some of the factors that could affect the APR youre offered.
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Best For Shopping Around For Refinancing: Lendingclub
- 2.99% to 24.99%
- Minimum loan amount: $4,000
Using a soft pull on your credit, LendingClub allows borrowers to instantly compare refinancing options
Easily compare refinance rates online
Pre-qualify with a soft credit check
No origination fees or prepayment penalties
Not available in all states
Some vehicle restrictions
Although LendingClub made a name for itself with peer-to-peer personal loans, the online lender now offers auto loan refinancing. If youre looking for ways to lower your monthly bills, LendingClub can help by showing you your refinancing options.
First, complete the initial application and get instant offers. This step is a soft pull on your credit that won’t change your score. Then you can compare the details of each proposal to see which best fits your needs. Whether you need to lower your interest rate, increase the length of your loan, or both, you can find the right lender.
Once you decide on an offer, you can finish the official application. The process is entirely online and easy. Although LendingClub is a broker, you won’t pay an origination fee for your loan. Finally, sit back and enjoy a smaller monthly payment. Rates start at 2.99%. Whether you’re sure you want to refinance or just seeing what’s out there, LendingClub is a great option.
Getting A Good Interestrate On A Car Loan Means Understanding The Difference Between Apr And Your Rate
The annual percentagerate on a car loan is one of the best kept secrets of every dealer. Notbecause they dont tell you what it is on your loan, but because most peopledont really know what it means.
That makes getting agood APR on your car loan pretty much impossible.
In this article, Illnot only reveal how to get a low APR on a car loan but how to negotiate to savethousands off your next car purchase.
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Tips For Reducing Your Auto Loan Rates
The best way to reduce your interest rate is to improve your credit score. This can be done by paying your bills on time and keeping your credit card balances low. Paying your monthly payments in full can also help. Outstanding debts or collection notices can impact your credit score, so paying these off will improve your credit.
However, building your credit score can take time and the advice above may not be practical for everyone, especially those with a limited income struggling to pay minimum balances each month.
There are a few other things that can reduce your auto loan rates:
- Have someone cosign: Many lenders allow you to have another person cosign a loan. A cosigner with strong credit can reduce your interest rates.
- Buy a new car instead of a used one: While new cars are more expensive, lenders typically offer lower auto loan rates for new car purchases.
- Place a bigger down payment: A bigger down payment can reduce your interest rate as well as the amount of time it takes to pay off your loan.
You might also consider trying to pay your loan in a shorter time frame. While this may not reduce your loan interest rate, it will mean that you pay off your loan sooner and will have to pay less interest. However, be sure to read your loan contract language carefully. Some lenders charge a prepayment penalty an extra fee for paying down your auto loan too early.
Historical Auto Loan Rates
Auto loan rates are at historically low levels as a result of an overall low interest rate environment. Over the last decade, the average interest rate on a 48 month auto loan from a commercial bank has fallen by over 40%. This is largely a result of the 2009 financial crisis, after which interest rates were lowered to incentivize consumers to stimulate the economy by spending on items like cars rather than saving.
Loans from auto finance companies have historically carried lower rates than loans from commercial banks. The large car manufacturers have “captive finance” arms that exclusively provide loans for consumers purchasing the parent companys cars this enables automakers to provide lower rates, as the car purchase, rather than the interest, is the manufacturers primary revenue stream.
*The Federal Reserve stopped reporting data on auto finance company interest rates after 2011.
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Banks And Credit Unions
Most banks who offer auto loans provide similar rates as low as 3% to the most qualified customers. However, there is much variance amongst banks in the highest allowed APR, with top rates ranging from as low as 6% to as high as 25%. Banks who provide higher rate loans will generally accept applicants with worse credit, while more risk averse lenders wont offer loans to applicants with scores below the mid-600s.
The typical large bank has specific eligibility requirements for loans, including a mileage and age maximum for cars, and a dollar minimum for loans.
Generally, credit unions extend loans at lower interest rates than banks, have more flexible payment schedules, and require lower loan minimums . However, credit unions tend to offer loans exclusively to their membership, which is often restricted to certain locations, professions, or social associations.
Best For Bad Credit: Myautoloan
- As low as 2.49%
- Minimum loan amount: $8,000
myAutoloan not only offers reasonable low rates, but it also has lenders that work with people who have a history of credit problems. The marketplace provides a great opportunity for borrowers with poor credit to shop deals from multiple lenders at once.
Accepts borrowers with poor credit
Offers new, used, and refinance loans
Higher minimum loan amount requirements
Not available in Hawaii or Alaska
myAutoloan is a marketplace that allows you to compare multiple offers from lenders based on your credit profile. This type of company can help you cast a wide net and get the best offer available. It offers new, used, refinance, private party, and lease buyout loans.
Speed is one of myAutoloan’s benefits. Its online form takes just a couple of minutes to fill out and, once submitted, matches you with up to 4 lender offers. After you choose a lender, you can receive an online certificate or a check within as little as 24 hours.
Requirements in myAutoloan’s market vary by lender, but they say they have lenders who work with borrowers with lower scores.
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Car Loan Apr Versus Interest Rate
When reviewing financing details and picking a lender, its important to compare APRs. According to the Consumer Financial Protection Bureau , an auto loans interest rate is the cost you pay each year to borrow money expressed as a percentage. The interest rate does not reflect fees charged for the loan. The APR is the cost you pay each year to borrow money, including certain fees, such as origination fees, expressed as an annual rate.