If you’re thinking about getting an auto loan, an online✅ lender is one place to start. Online lenders offer loans you can use to finance a vehicle from a dealer, private seller, or another type of car seller.
While online auto loans can streamline the process of getting a loan, they aren’t right for everyone. It’s important to fully understand how online auto loans work and consider all 🀅your loan options before making a decision on how to fund your ꦺnext car purchase.
- How online auto loans work
- Pros of these loans
- Cons of these loans
- Different types of loans
- How to qualify
- How to apply
- Does your credit affect your loan?
How online auto loans work
Online auto loans are a type of personal loan offered by lending companies. With an online auto loan, you’ll generally receive a lump sum of money upfront that you must repay in fixed monthly installments, with interest. Many of these loans al🥀so offer the benefit of being unsecured, meaning you don’t h🎉ave to use your car as collateral for the loan.
Otherwise, online auto loans typically work just like an auto loan from a bank, credit union, or local dealership. You’൲ll need to meet certain credit and income requirements to qualify, based on the lender. However, on the plus side, you won’t have to make a down payment.
“Many online auto loan websites are owned by t🌊raditional lenders, or work directly with them to offer credit to consumers,” said Jack Prenter, head of partnerships at Nex𓆏us Mutual.
“Getting a quote online can be extremely convenient, and since most loans today are priced based on quantitative computer models, it doesn’t make much difference if you go in person or fill out the form online,” Prenter added.
With online auto loans, lenders can also prequalify you for the loan before you submit a full applicatio꧋n. This allo🌊ws you to see which terms and borrowing amounts you could qualify for without undergoing a hard credit check.
Repayment terms for online auto loans generally range from two to seven years, and interest rates vary depending on the lender and your credit. You can typically use a secure online portal to make monthl🐭y payments on your car loan.
While you may not have to deal with dealership financing costs when you borrow an online auto loan, there may still be fees. For example, yoꦏur l🔜oan may have an origination fee for processing the loan, which can be as high as 10% of your loan amount.
Pros of online auto loans
- Convenience: Online auto loans are easy to apply for and you can get approved quickly without even leaving your home.
- No down payment required: You don’t have to put money down to buy a car the way you would with a traditional auto loan.
- May qualify for a lower interest rate: If you have good credit, you could potentially qualify for a lower interest rate than you would for a standard car loan. However, since most personal loans aren’t secured by your vehicle, this may not be the case.
Cons of online auto loans
- Can’t negotiate: While you have the opportunity to negotiate when you’re buying a car from a dealership, you can’t do so with an online auto loan.
- No in-person customer service: If you have questions or need assistance, you’ll need to rely on customer service by phone or online.
- Can be harder to qualify for: Many lenders have strict eligibility requirements, so if you don’t have excellent credit, you may not qualify for a loan.
What are the different types of auto loans?
There are a few types of auto loans you can get, including:
- New car loans: New car loans are for brand-new cars with 0 miles and no usage yet. New cars are usually more expensive than used cars, so it’s important to make sure you can qualify to borrow more based on the type of vehicle you’re considering and your financial situation.
- Used car loans: Used car loans are for cars that have been driven and had at least one owner. Online auto lenders typically offer both new and used car loans.
- Private-party car loans: You use a private-party car loan when you’re purchasing a car from a private seller. If you don’t have enough cash to buy the car outright, you can consider using an online lender to provide you with the funds to pay the seller.
How to qualify for an online auto loan
Before you apply for an auto loan, it’s important to make sure you qualify. He𝐆re are some common factors lenders consider:
- Income: Each lender has its own specific income requirements, but in general, you must earn enough to reasonably afford your monthly auto loan payment. You may need to provide proof of income in the form of pay stubs or tax returns.
- Credit score: Your credit score is used to determine the level of risk you may pose to the lender. A lower credit score could lead to a higher interest rate or even an application denial.
- Proof of residence: You’ll likely need to provide proof of residence in the form of a state ID or another document that shows your mailing address.
- Valid bank account: Many online lenders transfer loan funds electronically, so you must have a valid bank account.
How to apply for an online auto loan
The process isn’t much different from applying for an auto loan through your bank or at a dealership. Here are some generaꦆl steps🦩 you’ll follow:
- Compare loan options: Comparing loan options allows you to find the best terms and rates for your financial situation.
- Get prequalified: You can typically get prequalified on an online lender’s website. This process won’t negatively impact your credit and can usually be done in just a few minutes.
- Apply online: Once you’ve chosen an online lender for your auto loan, you can submit an application and upload all your supporting documents.
- Review loan terms and accept the funds: If you’re approved, the lender will send you the full loan terms to review before signing an agreement and receiving funds.
Does your credit affect your online auto loan?
Credit is one of the biggest factors that impacts an auto loan. Lenders look at your credit score to determine how well you manage debt. If your credit score is low, you may only qualify for higher interest rates. Having a credit score of 670 or higher can help you get lo✨wer꧒ interest rates and better loan terms.
Getting an auto loan with bad credit
Even if you have bad credit, it’s still possible to get an oဣnline auto loan. Some lenders cater specifically to borrowers with bad credi❀t. However, these options generally have higher interest rates.
One option is to add a cosigner with good credit🌊 to your application to help you get an auto loan. You can also take some time to pay down debt and improve your credit score before applying if you don’t need a car urgently.