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How to Get a Good Auto Loan

How to Get a Good Auto Loan

By Chris Kissell • April 07, 2015

Dreaming of buying a gleaming new car? Chances are good that you'll need an auto loan to finance that new ride.

To find the right auto loan for you, it is essential to do some research about the loan options available to you. Otherwise, how will you know you're getting the best loan that fits with your budget?

Auto loan shopping can seem intimidating, but researching loan options doesn't have to be.

Know your credit score

Before shopping for a new loan, know your credit score. Lenders weigh this score when determining your loan terms, says Anthony Sprauve, spokesman for FICO, the company that created the most commonly used credit score model.

"Lenders want to know the risk they're taking by lending you money," he says.

Consumers with lower credit scores typically have to pay a higher interest rate - or may not get a loan at all. Finding out your credit score in advance may help you anticipate any difficulties you may encounter as you apply.

There are various ways for you to get your credit score. Some options include:

  • FICO. You can order your FICO score at the myFico website for a fee.
  • Credit reporting agencies. The three leading credit reporting agencies - Equifax, Experian, and TransUnion - each create their own credit score based on the information they keep in your credit report. You can purchase these agencies' scores from each of their websites.
  • VantageScore. The credit reporting agencies have also developed an alternative to the FICO score. Dubbed the VantageScore, you can also purchase it online. OneMain customers can access their VantageScore for free here.

Before shopping, it is also important that you check your credit report for errors. Correcting these mistakes might boost your score, and potentially net you a better auto loan rate. You can get one free credit report from each of the credit reporting agencies annually.

Understand the loan terms

Upon learning your score, begin shopping at various lenders. To make sure you're making an accurate comparison, focus on the key features of each loan. These include:

  • The loan's interest rate and additional fees, expressed in terms of the annual percentage rate (APR)
  • The length of the loan
  • The monthly payment amount
  • How much money is required for the down payment

It's also important to be aware of any fees that you might incur. As with any loan, you should look into whether there are fees for paying too early, or for other unexpected scenarios.

Pay attention to the length of the loan, because you don't want to end up owing more than your car is worth (i.e. going "upside down"). LeeAnn Shattuck, Chief Car Chick with Women's Automotive Solutions suggests, in a blog article on, that "'the more miles you drive per year the shorter your loan term should be'" in order to help avoid going upside-down.

When buying used cars, therefore, it is important to consider mileage and its effect on the car's value and on the loan terms. You should check how many miles are already on the vehicle and consider how many miles you expect to put on it. That way you can try to get a sense of how long a loan term you should be considering.

Some lenders now are offering car loans that stretch beyond the traditional five-year limit to six or seven years. Such a loan can lower the monthly payment.

However, a longer loan term may cost you more money in interest over time. Longer loans also may have higher interest rates.

If you can afford it, you generally will pay the lowest costs by accepting the shortest loan term.

Where should you go for loans?

For financing an auto loan, you have several types of lenders to choose from. Banks, credit unions, car dealerships, and personal lending companies are your primary options.

Banks and credit unions often offer competitive rates, particularly if you already have a pre-existing relationship with the lending institution.

However, if banks and credit unions are not the right fit for your needs, OneMain may be a good option. With OneMain, customers can receive one-on-one support throughout the process, building a relationship with company loan representatives. Plus, you have the option of applying online, on the phone, or in person.

Securing loan terms from a bank, credit union, or personal lending company also gives you leverage if you later decide to negotiate a financing package through the dealership.

In some cases, the car dealership may be able to offer you financing that works with your budget. However, if you are considering financing through a car dealership, do a little homework about the dealership before you shop there. See whether past customers have good things to say about their experiences with the company. Be sure to find a lender that has consistently proven itself as honest and reliable. suggests that you might want to ask friends and family about their experiences with the dealerships you're considering. As they point out, "loyal customers are the lifeblood of a dealership's long-term business, so the best dealers will have earned their customers' trust."

To go the extra mile, you may want to investigate any lender by checking organizations such as:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of OneMain. The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else. The author was compensated by OneMain for this post.