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.
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 also offer the benefit of being unsecured, meaning you don’t have 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’ll 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 traditional lenders, or work directly with them to offer credit to consumers,” said Jack Prenter, head of partnerships at Nexus 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 application. This allows 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 monthly 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, your loan may have an origination fee for processing the loan, which can be as high as 10% of your loan amount.
There are a few types of auto loans you can get, including:
Before you apply for an auto loan, it’s important to make sure you qualify. Here are some common factors lenders consider:
The process isn’t much different from applying for an auto loan through your bank or at a dealership. Here are some general steps you’ll follow:
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 lower interest rates and better loan terms.
Even if you have bad credit, it’s still possible to get an online auto loan. Some lenders cater specifically to borrowers with bad credit. 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.