Best Auto Loans of October 2020
At BankingDeal.com, our goal is to empower you make informed financial decisions. We do this by presenting you with companies we feel are qualified to serve you the best. These companies are our advertising partners; however, this does not impact our opinions or ratings.
Buying a car is one of life’s most exciting moments. Driving away from the dealer in your freshly valeted set of wheels while pedestrians stop and stare is a great feeling. However, your new pride and joy will not come cheap. If you are lucky enough to have the funds upfront, then great, but if you need some financial aid in the form of an auto loan, then we are here to help. The same can apply if you have been leasing a vehicle and looking for a loan for lease buyouts, or if you are auto loan refinancing an old loan.
Summary of Best Auto Loans of October 2020
With so many auto loan providers out there, with each offering different loan terms, it can be challenging to compare and easy to end up overpaying. However, you may not be eligible for the best loans, with a poor credit score blocking you off from the best deals. Luckily, with the list of loan providers here, you will be able to find the best car loan provider for you, which cuts out the time between getting your finances and getting behind the wheel of your new car.
Your credit score is not the only deciding factor for the terms for your auto loan. The age and model of your new vehicle, your auto insurance policy, and for how long you intend to pay back the loan, and if refinancing a loan, how much of your old loan is left, determine how much you can borrow from the bank. The below guide will go into detail to ensure you are ready to become a car owner via an auto loan, or a motorcycle with a motorcycle loan, which works similarly to the discussed auto loan.
When Is A Good Time to Get an Auto Loan?
When dealing with a loan with a specific purpose, such as an auto loan, it might seem obvious as to when you should get your loan, which is right before you buy your car. While this is true to an extent, many prospective car owners will spend weeks researching their dream car, and then, instead of checking their loan options, take financing directly from the dealership. It is almost certain that if you go about an auto loan this way, you will end up overpaying. Instead, you should take an auto loan from a bank or a credit union, like the ones listed for you. Doing so will stop you from overpaying. As well as taking out a loan from a bank, credit union, or similar financial institution, instead of taking a financing offer from the car dealer, there are a few other things to do to ensure you are ready to get your loan when the time comes.
Set A Budget
The first thing an auto loan provider will want to know, and the car dealer for that matter, is what your total budget is? And, what’s your budget for the monthly payment? Knowing your monthly payment limit will allow you to see what you can afford. You also need to consider how long you want to be paying back your loan. You can achieve a lower monthly payment, by opting for longer loan terms, though you will be paying more in the long run. Take the time to work out how much you want to spend overall, and how much you can pay back monthly. That way, you are in control when you visit the car dealer, instead of getting hit with additional extras, that will cost more. An auto loan calculator can help you calculate how much you need to borrow.
Check Your Credit Score
Getting a loan of any sort is all about being prepared in advance. Part of that research will involve your credit score, which will help an auto loan provider decide what interest rate you will be charged on your monthly payment if you are applicable for a loan at all. A bad credit score will get you the worst deals, so, if possible, you should work on improving your credit history before taking out an auto loan. Ensuring the best chance of credit approval by having your credit report ready, showing an excellent credit score will make the whole experience go smoother. If you really can’t improve your credit score before applying for a loan, you can settle for the offered terms, and then refinance when you are in a better negotiating position.
Have Money for A Deposit
Knowing what your budget for your new car is, will help you when the time comes to commit to your loan. However, you should not just rely on the money from your auto loan to cover all costs.
First and foremost, you should have a deposit of at least 20% ready to be put towards the car. The less you have to borrow, the better, especially if you need to sell the car for some reason. If you owe more on the car than the actual value of the vehicle, then you won’t be able to sell it. Your dealership might not ask for a downpayment, but it’s smart to think ahead. A savings account is a perfect tool for building up a deposit, though a standard checking account is also suitable for holding the deposit funds. It is also possible, with some vendors, to use credit cards for a downpayment, though you still need the cash to pay that back.
You should also have the cash for additional expenses, such as:
- Sales tax
- Registration tax
- Documentation fees
- Other extras, such as extended warranties, which get explored below
Such charges can get put into your overall auto financing package, but that will increase the loan amount, which in turn increases the percentage rate of your monthly payment.
Make Your Loan Requests at The Same Time
Before making an official application for a vehicle loan, you should get preapproved, with more on that below. However, when the time comes to making your final car loan application, you should make your enquires all at once. Every time you make a loan request, the loan provider will check your credit score, with the check reducing your credit score each time. However, there is an allowed shopping period of 14 days, where you can make as many applications as you want, with your score only getting hit once. So, when you are ready to make your auto loan applications do them all at once to avoid seeing a drop in your credit score. You can make your request online like you can on the Suntrust bank website or in a physical branch.
An Auto Loan Vs. A Personal Loan
It is possible to use a personal loan to finance a new car, though, just because you can, it doesn’t mean you should. The main reason for using a car loan over a personal loan, car buying, is the interest rate. An auto loan is a type of secured loan, similar to a mortgage. The auto loan provider uses the car you are buying, as security against the loan. If you fail to make your monthly payment numerous times, the loan provider can take the vehicle to cover their costs. With this security, you will see better interest rates when compared to a personal loan. The average rate for a car loan, on a 48-month loan term, is around 5%, which is half of the average on a shorter-term personal loan.
However, you might see the advantage of not having to place collateral against the loan. Though, if you are worried about losing your car because you can’t make the monthly repayments, then you should reconsider getting a car.
Luckily, via the use of online banking applications, you can explore and compare your financing options to see which is best for you.
Understanding the Fees and Rates That Can Come with An Auto Loan
Unfortunately, an auto loan is not as simple as paying back the loaned amount with interest on top. There are additional fees, to consider that, if possible, you should pay for in cash. However, for you to pay those fees in cash, you should first understand what they are and where they come from.
Interest of The Actual Auto Loan
When shopping around for your auto loan, you will find the interest advertised two ways:
- Base Interest Rate – The base interest rate is the interest rate you will pay on top of the loan amount without any additional fees considered. Though it is a great indicator, it should not be the main factor in your decision to choose a loan provider.
- Annual Percentage Rate. – The annual percentage rate or APR is the total amount you will pay back annually until you pay back the loan in full. The APR will include any fees that come with the loan, so it is the best way for you to get a real understanding of what you are paying back.
One thing to be noted about an auto loan is that it is front-loaded. Front-loaded means that, at the start, more of your monthly payment will go towards the interest of the loan, than the actual loaned amount. As you get to the end of the loan terms, you start paying more on the borrowed amount. Front-loaded is essential to note as if you sell the car, or it becomes unusable, you will still have the loan amount to pay back, which GAP insurance can help with. If you have to settle for terms that aren’t as good as they could be, you can refinance your auto loan in the future to secure a better deal.
The second-best thing about a loan, after you have spent the money is paying it off. However, whether you are taking a loan out for the first time or auto refinancing, you should check the terms of the loan. You may wish to pay off your loan early, if finances allow, though doing so can leave you hit with a prepayment penalty. Not all loans will have this fee.
Guaranteed Auto Protection
Guaranteed auto protection that you may see shortened to GAP is a form of optional insurance. GAP gets used to cover the difference between your actual insurance payout and whatever you have remaining on your auto loan if your car was to get stolen or damaged. If such protection is of interest to you, be sure to shop around for the best deal. Any annual payments on your insurance can get rolled into your auto loan, but you will see an increase in interest.
Extended Vehicle Warranty
A car dealer that can offer you financing will be sure to push an extended vehicle warranty on you. This warranty will cover the cost of expensive repairs that are not part of the manufacturer’s warranty. However, this warranty is not required. If you do opt for the extended vehicle warranty, you should aim to cover the cost with cash, as opposed to including the balance in your auto loan, which will increase your interest. If you need this warranty, ask the bank, credit union, or other financial institution that you are using for your auto loan, if they offer such a package. You are sure to get a better deal from a bank when compared to a car dealer.
In most states, you must have both bodily liability coverage and property damage liability coverage. Your lender or dealership can most likely offer you liability insurance, which can get rolled into your overall loan amount. However, you should shop around and find a liability insurance provider, such as Trustage insurance, who are federally insured, on your own, to ensure you are getting the best deal.
Collision insurance is not a legal obligation, unlike liability insurance. The insurance covers the cost of repairs to your vehicle if they come from an accident that is your fault. Despite collision insurance not being a legal requirement, car loan providers can deem it necessary in their terms, because, if you need a large sum of money to repair the car, there is a chance you can fall behind on the loan repayments. Like most additional extras that come with purchasing a car, you should get a quote yourself instead of taking the first offer from the dealership.
How to Get Preapproved On An Auto Loan?
Now you know when is the best time to get a loan, and to avoid personal loans, if possible, you are getting closer to getting an auto loan. You should not just go into the bank or financial institution, borrow the money, and then head down to the car lot. You should first get preapproved, and through preapproval on an auto loan, you can find out how much you can borrow if your credit score allows you to borrow at all. Preapproval from a bank or credit union will only give you estimated terms, though, it can help you work out what you can borrow, and more importantly, afford to pay back.
Preapproval does two things for you, on top of letting you know how much you can borrow. First, it enables you to focus on the car you can afford, instead of shopping aimlessly. You should have a budget in mind already, but getting preapproved on a car loan gives you an exact figure that you can go up to. Secondly, you will have more substantial negotiating power at the dealership. You already have a loan offer, so you don’t need to feel pressured by the financing terms of the dealer. Additionally, they may even offer you better terms to earn your custom, giving you the chance to save money. Whichever option you go for, you should check the lender against the NMLS consumer access website, which will allow you to verify that the dealership or financial institution can legally provide you with a car loan.
Why You Should Avoid A Loan from A Dealership
An actual bank or credit union will allow you to get preapproved for a loan, though that won’t stop the dealership from putting themselves forward as a financer. As stated above, you can get a great deal from a dealer if you have done the work beforehand. However, you must understand the difference between a great deal and what looks like a great deal on the surface. There are a few tricks you should watch out for.
- Appealing Monthly Payments – A dealership can advertise low monthly payments on a loan, and smaller is better right? Wrong. How long is the loan term? Are the monthly payments advertised as APR, or is it just the base interest? Get these questions answered before accepting what looks like a great deal.
- Small Or No Downpayment Required – As touched on above, you should have the cash to make a downpayment of 20% at least. Even if the dealership tells you it is not needed, the down payment will reduce your overall loan amount, meaning you have to pay less back.
- Additional Car Features – If you have used the advice above, and got preapproved with a set budget, you are in an excellent position for when the additional car features offer comes around. A car dealer will try to sell you features, such as custom interiors or high-performance wheels, but you have a clearly outlined budget to stick to. If you can’t afford it, and the feature is not a necessity, don’t allow yourself to get roped in.
How Was This List Compiled?
Everyone wants a new car, and with a shiny new set of wheels in front of you, it can be easy to forget about the loan helping you make the purchase. Don’t be tempted by a convincing dealer offering a variety of deals, as it is their job to get as much money out of you as possible. Instead, the above list of lenders contains some of your best choices for an auto loan. Take the time and source out your loan, before heading down to the car lot with your driver’s license in hand. But why are the lenders above the best? Some factors that secured a lender a place on this list include, but are not limited to:
- Whether they are upfront with their fees
- If they can offer all the necessary extras, to make your car purchase go smoothly. And ensure those extras come at a fair price.
- Whether their customer service, through the application, to the monthly repayments, to when you make that final payment, is of consistently high quality.
- How easy it is to manage your loan, whether through mobile banking, online banking, or in the bank branch. No matter if you took out a loan for a purchase or planned to refinance an old one.
The Best Auto Loans Of 2020, So Far
The above lenders can help to meet your needs, no matter what they are. A variety of auto loan rates and terms can help almost anyone secure an auto loan, though your financial situation and credit score will determine your final choice.