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Review of Types of Car Loans


Not all car loans are created equal. From the terms of the loan to the institution providing and servicing the loan, it is important to consider all aspects of the loan to get the best deal for yourself and get the best possible service. Below are some of the loan elements to consider as well as your options in terms of lenders.


Interest Rates

Interest rates are constantly in flux, so finding a time when rates are low or when special deals are offered by car manufacturers can save you a great deal of money. A large part of the interest rate will depend upon your credit rating, but the length of the loan, current interest rates, the car you are buying and who you get the loan through will all contribute to the overall cost of the loan. This means, unfortunately, you do have to do some research. If buying a new car, you may qualify for very low interest rates through the manufacturer, sometimes as low as 0 percent.


Length of the Loan

The length of the loan is just as important as the interest rate. It impacts monthly payments, interest rates and the overall amount of interest you will pay for the loan. A shorter period loan is ideal if you can afford the payments. A shorter loan period will get you a better interest rate and reduce the amount of time you are paying interest. A longer loan term will mean lower payments but higher interest rates and more time paying that interest. Most car loans are 4 to 6 year terms, also known as 48, 60, or 72 month loans. You can sometimes find short-term loans of 1 to 3 years and occasionally longer terms of 7 or 8 years.


Numerous Lender Options Available

This is the trickiest of all questions regarding car loans. Lending institutes are constantly changing what they offer, how they service loans and the qualifications for those loans. Dealerships offer credit through a variety of lenders including the manufacturers of the vehicles they sell. You can seek out your own lender through nationwide and local banks. You may also want to get your loan through a local credit union. It will take a bit of research to determine which is the best fit for you.


Local Credit Union Car Loans

Credit unions are many times the best choice if you are a member. They generally offer lower interest rates and because of their smaller size, the service tends to be better. However, credit unions may have tougher qualifications or may not offer loans large enough to cover the cost of your vehicle. If you are a member of a local credit union, you should start your search there, but continue to look for a better deal.


Dealership Auto Loans

A car loan through a large dealership can be the convenient choice as you can get your loan approved on the spot when making your vehicle purchase. They may also offer better deals if you purchase a new vehicle from their lot because they can offer manufacturer discounted interest rates. For a used vehicle, or if reduced financing rates are not available through the manufacturer, you may not get the best deal from the dealership. They essentially serve as the middle man for financing, which means you may be paying for them to get their cut of the interest payments.


Bank Auto Loans

Large lending institutions constitute a large chunk of lending for vehicles. There are many to choose from and some are more highly regarded than others. In 2012, the Auto Loan Service ranked the top 5 nationwide car lending institutions as follows:

Approved Stamp

  1. US Bank Auto Loan
  2. Bank of America
  3. myAutoloan
  4. up2drive
  5. Chase


If there isn’t a credit union available that you can take advantage of and there are no manufacturer incentives through the dealership, then you may want to continue your shopping with these 5 options until you find the best terms for your auto loan.



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