Best car loans of April 2022

When it comes to car shopping, finding the right loan can be just as important as finding the right car. 

It’s not as easy as simply showing up to the dealership. To get the lowest interest rate, you’ll want to shop around for an auto loan to see what kind of financing is available to you. Dealerships often mark up the interest rates on loan offers from lenders, and that can leave you paying more for the same car. 

The good news is that it’s completely avoidable if you’re willing to shop around for your loan and get pre-approved before you start shopping at the dealership. To get the lowest interest rate, you’ll want to shop around for an auto loan to see what kind of financing is available to you. (Keep in mind that the lowest interest rates will typically go to buyers with the best credit.) Once you start getting rate quotes, you’ll have two weeks to gather all the quotes you’d like without multiple inquiries hurting your credit score — the credit reporting bureaus count all of those inquiries as one within that period.

Having a pre-approval for a car loan can give you better bargaining power and peace of mind that you’ll have the lowest interest rate possible. As you start shopping, keep in mind that your local small bank or credit union could also be a great place to get a loan — these institutions often offer lower car loan interest rates than big banks, but are usually limited to a relatively small geographic area.

Here are a few banks to help you start your search for a variety of situations.

Best overall, best for lease buyouts: Bank of America

Bank of America has excellent rates for auto loans currently. Rates for a new car purchase start as low as 2.09% APR, and a used car could be as low as 2.29% APR. Bank of America offers rate discounts for current customers, up to 0.5%.

If you’re interested in buying the car you’re currently leasing but need a loan to do so, Bank of America offers a loan for that. Bank of America offers a variety of auto loans, and like the others, its interest rates are competitive in 2021. Lease buyouts can have higher interest rates than a new or used car loan, but Bank of America’s lease buyout APRs start lower than the rates other lenders offer.

Best for excellent credit: LightStream

If you have a good or excellent credit score, you might want to consider LightStream in addition to Bank of America. A part of SunTrust Bank, Lightstream focuses on auto loans to customers with good or better credit.

Because it focuses on a narrow subset of customers, its rates don’t go too high — For a 36-month loan for a new car purchase between $10,000 and $24,999, interest rates range from 2.49% to 6.79%. However, borrowers with lower credit scores may find better rates elsewhere. 

Capital One offers easy and reputable auto loans for borrowers with credit scores of 500 or higher. Capital One offers loans as small as $7,500 for used vehicles.

Online bank Ally doesn’t offer financing to purchase a car. But, if you’re looking to refinance the car you already have, its auto lending division Clearlane offers some competitive rates. As long as your vehicle meet the standards (less than 100,000 miles, and fewer than 10 years old), this lender could offer a competitive rate as low as 3.99% according to NerdWallet. Clearlane also offers auto lease buyouts.

Which lender is the most trustworthy?

We’ve reviewed each institution’s Better Business Bureau score to help you make the best decision possible when choosing an auto loan. The BBB measures businesses based on factors like truthfulness in advertising, honesty about business practices, and responsiveness to consumer complaints. Here is each company’s score:

A majority of our top picks are rated A or higher by the BBB, with the exception of Clearlane by Ally. Keep in mind that a high BBB score does not guarantee a good relationship with a lender, and that you should keep doing research and talking to others who have used the company to get the most helpful information you can.

The BBB currently rates Clearlane by Ally a D- because of 53 complaints filed against the business, including one unresolved complaint. Due to the lenders’ BBB scores, you might prefer to use a different auto loan company on our list.

How we determined the best car loans

These lenders were chosen based on interest rate (APR) for various credit scores, whether you’re buying new or used, and loans for a specific need like refinancing or lease buyouts. Insider gathered data from NerdWallet, MagnifyMoney, and Credit Karma, and from the lenders themselves. This list only considers loans that were available in most of the US, and does not include captive lenders — lenders owned by auto companies. 

Frequently asked questions

The dealership I’m shopping at offers financing. Should I just use that? 

Car dealerships are allowed to mark up interest rates on auto loans that they offer, and generally, they do. The interest rate a salesperson offers often includes a cut for the dealership, resulting in a higher interest rate for you. While you might qualify for an interest rate of 6% from a bank, you might see 6.5% or even 7% from a dealership, for example. 

If you’re willing to put some work in, you may be able to save by shopping around on your own. The best way to avoid this issue is to get pre-approved by a few banks or lenders as you start car shopping, and take those pre-approvals to the dealership with you. Then, you’ll have a few estimates on what your cost to borrow could be, and can comparison shop for the lowest APR. 

Does it matter how long my term length is?

The longer the loan term, the lower the monthly payment. But, paying for longer than 60 months (five years) on your auto loan could leave you owing more than your car is worth. 

Cars depreciate quickly, and if you’re paying for more than five years on an auto loan, your loan could end up in this situation, also called being “upside-down.” As auto loans increase in length, auto loan delinquencies tend to increase, too.

Getting an auto loan with bad credit? Here’s what you need to know.

If you’re shopping for a car loan with bad credit, you could benefit a lot by doing your research and shopping around when looking for an auto loan. Avoid any “buy here, pay here” financing, as these loans often come with exorbitant interest rates and high monthly payments, which could cause you to default on your payments.

A local credit union might be a good place to start if you have a bad credit score — sometimes lenders like these can be more forgiving and offer lower interest rates than big banks.