Buying a car is a significant financial commitment. While finding the right make and model is exciting, securing the right financing is crucial. A low-interest auto loan can save you thousands of dollars over the life of the loan, making your vehicle more affordable.
This guide will walk you through everything you need to know to find the best low-interest auto loans in the USA, from comparing top lenders to improving your own credit for a better rate.
What is an Auto Loan?
An auto loan is a secured installment loan specifically used to finance a vehicle. The car itself serves as collateral for the loan. This means if you fail to make payments, the lender can repossess the vehicle. Because the loan is secured, interest rates are typically lower than those for unsecured debts like credit cards or personal loans.
Our Top Picks for Low-Interest Auto Loans
Here are our selections for lenders offering some of the most competitive auto loan rates in the market today.
1. PenFed Credit Union: Best Overall for Low Rates
As a credit union, PenFed consistently offers some of the most competitive annual percentage rates (APRs) available to members.
- Key Features: Exceptionally low rates for new and used cars, refinancing, and lease buyouts.
- Loan Terms: Up to 96 months.
- Why We Chose It: PenFed is a top choice for borrowers with good to excellent credit who are seeking the absolute lowest possible interest rate. Membership is open to everyone.
2. LightStream: Best for Excellent Credit
A division of Truist Bank, LightStream is renowned for its low rates and excellent service for highly qualified borrowers.
- Key Features: Offers a Rate Beat Program, beating a competitor’s rate by 0.10 percentage points.
- Loan Terms: 24 to 84 months.
- Why We Chose It: If you have a strong credit profile, LightStream provides a seamless online experience for both new and used car purchases, with the option for same-day funding.
3. Capital One Auto Navigator: Best for Easy Pre-Qualification
Capital One’s platform is user-friendly and allows you to pre-qualify with a soft credit check, showing you real loan offers from a vast network of dealers.
- Key Features: Get real, personalized rates without impacting your credit score.
- Loan Terms: Flexible terms based on the vehicle.
- Why We Chose It: It’s a fantastic tool for getting a baseline idea of what you can afford before you even step onto a dealership lot.
4. Bank of America: Best for Existing Customers
If you’re already a Bank of customer, you may qualify for preferred pricing and discounts.
- Key Features: Relationship discounts for having a Bank of America checking account and/or other assets with them.
- Loan Terms: 12 to 75 months.
- Why We Chose It: The loyalty discounts can lead to significant savings, making their already competitive rates even better for valued clients.
5. Local Credit Unions: Best for Competitive Local Offers
Don’t overlook smaller, local credit unions. They are member-owned and often provide the most aggressive rates in your community.
- Key Features: Personalized service and often more flexibility for members.
- Why We Chose It: For both new and used car loans, local credit unions frequently outperform large national banks on rate alone.
How to Qualify for a Low-Interest Auto Loan
Your interest rate is primarily determined by your financial profile. Here’s what lenders look at:
- Credit Score: This is the most significant factor. Borrowers with good credit scores (typically 700+) and excellent credit (750+) receive the best car loan interest rates.
- Income and Employment: Lenders need to see that you have a stable, verifiable income to make the monthly payments.
- Debt-to-Income Ratio (DTI): This measures your monthly debt payments against your gross monthly income. A lower DTI (below 36%) is ideal.
- Loan-to-Value Ratio (LTV): This compares the loan amount to the car’s value. A larger down payment lowers your LTV and can help you secure a better rate.
- Loan Term: Shorter loan terms (e.g., 36 or 48 months) usually come with lower interest rates compared to longer terms (72 or 84 months).
Steps to Get the Best Auto Loan Rate
- Check Your Credit Report: Obtain your free reports from AnnualCreditReport.com and dispute any errors that could be lowering your score.
- Get Pre-Approved: Get a pre-approved auto loan from a bank, credit union, or online lender before you car shop. This gives you negotiating power at the dealership.
- Compare Multiple Offers: Don’t settle for the first offer you receive. Compare auto loan rates from at least three different lenders.
- Shop at the Right Time: Dealers may have manufacturer-sponsored low-APR financing deals, especially at the end of the month, quarter, or model year.
- Consider a Co-signer: If your credit is less than ideal, a co-signer with strong credit can help you qualify for a much lower rate.
New vs. Used Car Loans
- New Car Loans: Typically have the lowest auto loan rates because the new vehicle is less of a risk for the lender.
- Used Car Loans: Interest rates are generally higher than for new cars, but you can still find excellent low-interest used car loans, especially for late-model vehicles.
Frequently Asked Questions (FAQ)
What is considered a low auto loan interest rate?
A “low” rate depends on the market, but as of 2024, anything below 5% for a new car and 7% for a used car is considered excellent for borrowers with top-tier credit.
Can I get a low-interest car loan with bad credit?
It is very challenging. You will likely face high interest rates. The best strategy is to work on improving your credit score first or finding a co-signer.
Is it better to get a loan from a bank or a dealership?
Getting pre-approved from a bank or credit union gives you a bargaining chip. The dealership’s finance department may then try to beat that rate, so you win either way.
Conclusion: Drive Away with a Great Deal
Securing a low-interest auto loan requires preparation and research. By understanding your credit, getting pre-approved, and comparing offers from top lenders like PenFed, LightStream, and local credit unions, you can ensure you’re getting the most affordable financing possible.
Take the time to find the best auto loan rates today—your wallet will thank you for years to come.
