Auto Loan Resources - Tips and Advice on Taking Out Auto Loans | Bankrate.com (2024)

FAQs

What's most important when taking out a car loan? ›

Be sure to pay extra attention to your credit score while financing. Having a good credit score means more options for auto loan rates. Sometimes, dealers attempt to offer higher loan rates. Having prior knowledge of all auto loan rates you qualify for, in this case, will help you secure the right auto financing.

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.

Do I have a good enough credit score? Before you start applying for personal loans, it's important to know your credit score. Most lenders, particularly online banks, are looking for applicants to have a good credit score, considered 690 or above.

People with excellent credit qualified for rates around 5.64 percent, while people with bad credit had an average new car rate of 14.78 percent. Rates for used cars were higher — 11.93 percent across credit scores. And the average rate for bad credit was a sky-high 21.55 percent.

Not everyone can qualify for an interest-free loan. In fact, lenders or dealerships might review several requirements, including: Credit score: You might need a credit score of at least 740 to be considered for a 0% APR loan.

You can borrow from $1,000 to $100,000 or more with a 700 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

What factors to consider when taking a loan? ›

Financial experts recommend spending no more than 20 percent of your take-home pay on an auto loan payment. Also, consider whether your financial situation is likely to change. For example, if your job security is shaky, you may want a lower monthly payment.

Some lenders charge a penalty for paying off a car loan early or making extra payments. Check your loan contract to see if your lender has one. If your lender does charge a prepayment penalty, compare the cost to the potential savings you might get from accelerating your payoff schedule.

When you take out a car loan from a financial institution, you receive your money in a lump sum, then pay it back (plus interest) over time. How much you borrow, how much time you take to pay it back and your interest rate all affect the size of your monthly payment.

Sufficient income, credit and a history of paying debts on time are among the top criteria lenders seek in an applicant. The documents you need for an auto loan verify that you can afford to pay back what you borrow.

Put more down up front

The 20/4/10 rule recommends putting at least 20% down on a vehicle. You can always consider a higher down payment — especially if your credit isn't stellar. The more you pay up front, the less you'll need to cover with a loan and the less you're going to pay monthly.