Car Loans
Financing a car without overpaying: how auto loans work, getting preapproved, comparing rates and terms, and avoiding costly dealer add-ons.
Car loan basics
How Car Loans Work: Rates, Terms and Getting Approved
A car loan lets you spread the cost of a car over several years, but the rate and term you choose can add thousands to what you pay. Here's how auto loans work, current average rates, how long a loan should be, how to get preapproved and how to avoid common dealer financing traps.
| Credit tier | New car APR |
|---|---|
| Super prime Credit score 781–850 New car APR: 4.41% | 4.41% |
| Prime Credit score 661–780 New car APR: 6.15% | 6.15% |
| Near prime Credit score 601–660 New car APR: 9.71% | 9.71% |
See all 6 credit tiers and how we chose them
For information only, not a recommendation. Rates and terms change often and may depend on where you live; check the details with the provider before you apply. Pond.com isn't paid by any provider listed here.
Financing a car
How you pay for a car can matter as much as the price you pay. A higher interest rate or a long loan term can add thousands to the total cost, while getting preapproved and comparing offers puts you in control.
How car loans work explains interest rates and APR, loan terms, down payments, how your credit affects your rate, getting preapproved, dealer financing and refinancing.
Your credit score has the biggest effect on the rate you're offered, so check it before you shop; see how credit scores work and how to check your credit report for free.
Financing is part of the overall deal. How to negotiate a car price explains why you should agree the price before discussing financing, and how to handle add-ons like GAP insurance and extended warranties. Make sure the monthly cost fits your budget with the true cost of owning a car. For other kinds of borrowing, see personal loans explained.
Common questions
Shorter terms, such as 36 to 60 months, cost less in total interest and reduce the risk of owing more than the car is worth. Longer terms lower the monthly payment but usually cost much more overall.
Yes. A preapproval from your bank, a credit union or an online lender tells you your rate and budget, and gives you an offer to compare with dealer financing. If the dealer beats it, you can take the better deal.
Often, yes. If your credit has improved or rates have fallen since you bought the car, refinancing with another lender may lower your rate or payment. Check for fees and avoid stretching the loan out much longer.