Consumers have many options available when shopping for a car loan. Customers with good credit have more options than those with poor credit. If you do not know how your credit is, visit our credit report page and order your free credit report. The higher your credit score, the less you'll pay in interest. If you have bad credit, options are still available.
Auto loans are secured loans, which means they are secured by collateral (in this case, the vehicle). If the loan is in default, the car, truck or other vehicle can be repossessed. Because of this, secured loans have lower interest rates than unsecured loans.
Dealer Financing: This option is available through the dealership and may include offers from both prime and subprime lenders. Many dealerships and automakers have their own lending institutions and sometimes have special financing rates for certain vehicles.
With dealer financing, loan applications are evaluated electronically through a credit report analysis. Loan applications are then offered to a variety of lenders who will make offers to buy that loan at a certain rate (buy rate). If the dealer is offering incentives, these will be factored in before the offer is made.
Dealer financing can be advantageous; however, if there are no buyer incentives or special offers, borrowers may find better rates from banks or credit unions. If your credit is subprime, subprime lender may be selected. Subprime loan can lower your credit score – if a direct loan is available from a prime lender, it might be the better offer.
Direct Loans: Direct loans (also referred to as personal loans) are made directly to consumers by banks or lending institutions. Credit history and credit scores are considered for loan approval, but other factors are included as well. Banks that have relationships with their customers might be more flexible in the offers they extend to these customers.
Credit Unions: Direct loans are also offered through credit unions. The major difference between banks and credit unions is that credit unions almost always have lower interest rates (and fees) than banks, making their loans more favorable to borrowers. Credit unions occasionally offer special rates or partner with local dealerships to offer incentives for their members. Many credit unions are now open to the general public.