We believe everyone should be able to make financial decisions with
confidence. And while our site doesn't feature every company or
financial product available on the market, we're proud that the
guidance we offer, the information we provide and the tools we create are
objective, independent, straightforward — and free.
So how do we make money? Our partners compensate us. This may influence
which products we review and write about (and where those products appear on
the site), but it in no way affects our recommendations or advice, which are
grounded in thousands of hours of research. Our partners cannot pay us to
guarantee favorable reviews of their products or services. Here is a list of our partners.
How Do Car Loans Work?
Here's how to learn the language of auto loans and how they work before buying a car.
Many, or all, of the products featured on this page are from our advertising
partners who compensate us when you take certain actions on our website or
click to take an action on their website. However, this does not influence our
evaluations. Our opinions are our own. Here is a list of our partners and
here's how we make money.
Updated · 2 min read
How is this page expert verified?
NerdWallet's content is fact-checked for accuracy, timeliness and
relevance. It undergoes a thorough review process involving writers and
editors to ensure the information is as clear and complete as possible.
Shannon Bradley is a NerdWallet authority on autos and home services. Before joining NerdWallet in 2021, Shannon spent 30-plus years as a writer, content manager and marketer in the financial services industry. In these roles, she developed financial expertise and created educational content covering a wide range of personal and business topics. Shannon is based in Newburgh, Indiana.
Julie Myhre-Nunes leads the Auto Loans, Student Loans and Home Services teams at NerdWallet. Julie has over a decade of experience in personal finance. Before joining NerdWallet, she led editorial teams at Red Ventures and several startups. Her personal finance insights have been featured in Forbes, The Boston Globe and CNBC, while her writing has appeared in USA Today, Business Insider, Wired Insights and more.
Published in
Managing Editor
SOME CARD INFO MAY BE OUTDATED
This page includes information about these cards, currently unavailable on
NerdWallet. The information has been collected by NerdWallet and has not
been provided or reviewed by the card issuer.
Car loans work by providing a lump sum of money for you to buy a car. Then, it's yours to drive, while also making monthly payments on the loan (with interest) over time. Until you fully repay the loan, the lender holds the title to the car and can repossess it if you fall behind on payments.
To get a car loan, you will need to apply and be approved by a lender. You can apply at banks, credit unions, online lenders and at the car dealership. To make sure you find the best loan, it’s a good idea to apply to several lenders and compare offers. Don’t rely solely on the dealership, where interest rates and fees can be higher for your car loan.
Some lenders offer an interest rate discount if you meet certain requirements — for example if you have your monthly car payment automatically withdrawn from a checking or savings account.
Working with an auto lender
With many lenders, you can pre-qualify or get preapproved for an auto loan in minutes. Pre-qualification is usually done with a soft credit inquiry, so it won’t affect your credit scores. You receive an estimate of loan rate and payment, but estimates could change if you move forward with the pre-qualified offer.
Preapproval is typically done with a hard credit inquiry, which can temporarily and slightly lower your credit scores. However, the lender has more details about your credit history, so the rate and payment amount you’re given is less likely to change.
Once you accept a pre-qualified or preapproved auto loan offer, the lender is likely to ask for documentation to verify your personal and financial information before it gives final loan approval.
After you’ve purchased your car, you’ll receive a payment book and lender information in the mail or an email inviting you to set up the account online. Your lender will also request proof of auto insurance coverage. Once you’ve purchased auto insurance, the insurance company will typically send verification of coverage to your lender.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for borrowers with good or excellent credit who want fast approval and funding to buy a new car.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.5
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.74 - 15.24%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
Best for applicants who want to compare multiple new car purchase loan offers.
NerdWallet's ratings are determined by our editorial team. The scoring formula takes into account factors like maximum rates, variety of loan options, visibility of borrower requirements, accessibility, speed of funding, fees and more.
4.0
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
6.24 - 29.90%
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Auto Credit Express
New car purchase loan
Not yet rated
Best for new-car buyers who can’t qualify for a lower-rate loan through a traditional lender and need help finding a dealer with subprime lending.
Min score: 525
Amount: $5,000 - $50,000
Min. Amount$5,000
Max. Amount$50,000
Not yet rated
Est. APR:
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
Annual percentage rate (APR) represents the true cost of
borrowing money. It is your interest rate plus any loan fees,
and is expressed as a percentage.
N/A - N/A
Term: 24 - 84 months
You will be redirected to the partner's website.
The terms presented here are estimated and provided solely to assist you
in finding a great lender. The terms may vary based on the partner's terms
and conditions.
You will be redirected to the partner's website
The terms presented here are estimated and provided solely to assist you in finding a great lender. The monthly payment amount, Annual Percentage Rate (APR), and any other terms are based on standard Consumers Credit Union rates and terms for your NerdWallet provided credit score, zip code, and the other self-provided information. These terms may vary based on your credit history, your individual income, or other terms of the lender.
Before applying for a car loan, you should be familiar with these terms and what they mean.
Annual percentage rate: APR is the amount you pay each year to borrow money, including any lender fees, and it's expressed as a percentage. The APR you receive will be based on several factors, with the most important being your credit history and credit score.
Loan term: The length of time you have to pay off the loan. Auto loan terms are usually in 12-month increments, with the most common at 24, 36, 48, 60, 72 and 84 months. NerdWallet recommends no longer than 60 months for new cars and 36 for used cars if possible. The longer the term, the more interest you'll pay over the life of the loan.
Interest rate: Similar to APR, but without loan fees included. Since fees can vary from lender to lender, you should use the APR when comparing loan offers for a more accurate comparison.
Principal amount: The amount of money you originally agreed to pay back. It doesn't include interest.
Amortization: The process of paying off your loan that sends a portion of your payment toward principal and a portion to interest. Early in your loan, a higher percentage of your payment goes to interest. Later, more of your payment will be applied to the loan principal. Because of this, your principal will decrease more quickly toward the end of the loan. (Here's more information about how auto loan amortization works.)
Down payment: The amount you can pay upfront toward the car’s price, lowering the amount of your loan.
Taxes and fees: Additional costs rolled into the total price of your car, such as state sales tax, a documentation fee and possibly other dealer charges.
Total car cost: The full loan amount (including principal, interest, down payment or trade-in) you will pay over the life of your car loan.
Car financing: Refers to paying for a car over time. In addition to getting a car loan, this could include leasing a car or refinancing your current car loan to a new one.
Loan-to-value ratio: The value of your car compared to the loan amount. Because auto loans are secured with the vehicle as collateral, a car's loan-to-value ratio or LTV is a way for lenders to measure their own risk when approving a loan. LTV is calculated with this formula: Loan amount / car value x 100 = LTV. The LTV can affect your loan rate and whether you are approved for a loan.
With an understanding of the language you'll find on car loan applications and agreements, you’re prepared to apply to several lenders, compare offers and choose a loan.
Your auto loan needs to work for your situation
Lenders will most likely present options for several terms and rates, resulting in different monthly payments. You may be inclined to go with a longer term to get a lower monthly payment, but this will cause you to pay more interest over the life of your loan.
Consider this example: If you take a $40,000 car loan at a 9.50% APR with a 48-month term, you would pay a total of $8,236 in interest. If you extend that same loan to a 72-month term, your monthly payment will be about $274 less, but you will end up paying $12,631 in interest.
In reality, you will need to balance the lowest term possible with the monthly payment that fits your budget. NerdWallet recommends spending less than 10% of your take-home pay on a car payment. With our car loan calculator, you can input various loan amounts, rates and terms to see different payment scenarios. Taking time to understand how car loans work before you buy a car can help you choose the best loan for your budget and situation.
Article sources Article sources
NerdWallet writers are subject matter authorities who use primary,
trustworthy sources to inform their work, including peer-reviewed
studies, government websites, academic research and interviews with
industry experts. All content is fact-checked for accuracy, timeliness
and relevance. You can learn more about NerdWallet's high
standards for journalism by reading our
editorial guidelines.
