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Online Car Loans : Everything You Need to Know

  • Auto Refinance
  • Natasha Young
  • 8 minutes

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Applying for a car loan through an online lender may seem to be more flexible, with some lenders offering lower interest rates than traditional banks. However, not all online car loans are the same. Read to know more. 

online car loan

How does online car loan approval work? 

Getting loan approval when applying online is very similar to when you are applying in person. You submit an application and then wait to hear back about your status. You can go to a dealership after getting loan approval and begin negotiations. You won’t have to rely on the dealer to provide you a favorable price because you’ll already know how much you may borrow and how much interest you’ll have to pay.¬†

Before you apply, you should usually know how much you can borrow and afford, as well as what kind of car you want to buy. Use our auto loan calculator to figure out your monthly payments. Lenders can give you a pre-approval that lasts up to 30 days if you qualify. This gives you time to look for a car and decide on one before you have to sign a loan agreement and start making payments. If not, the money can usually be transferred to your account the next business day. 

Comparing online car loans 

Banks, credit unions, and people who lend money on their own offer car loans. Since there are so many choices, it can be hard for you to decide. Here are some pointers for you to compare and then confirm when you looking for an online car loan.  

Application process 

Lenders will request to provide them with legal documents in order to approve your loan. But different lenders process these differently. Some lenders have systems that can skim through your application and then proceed. But some might ask you to fax the documents and others might check them online. Figure out what’s convenient for you and then decide which lender is best for you.¬†

Down payment  

The amount of your down payment can affect the rates a lender can offer you and how long you need your loan to last. Keep in mind that more is better. You can even use a car you’re trading in as a down payment.¬†

Total cost  

When comparing two loans for the same amount, interest rates and fees affect how much each loan will cost in total. When looking for the better option, look for the better APR as it sums up the total cost. For those with credit scores ranging from 781 to 850, an average new car interest rate of 2.4% is considered decent. For borrowers with the lowest credit scores (300 to 500), an average rate of 14.76% is more reasonable.   

Dealership connections 

If you decide to use a service that helps you find a car loan, do some research on the dealers it works with to make sure you’re buying from a reliable source.¬†

online car loan

How to apply for an online car loan 

Even though each lender is different, here are the basic steps you’ll need to take to apply for a loan:¬†

  • Do enough research and find a lender who works for you.¬†
  • Verify the integrity of the website and upload the necessary details.¬†
  • Submit your application and wait for feedback.¬†

Most lenders will be able to respond in a few minutes if you’ve been approved. Before you sign the loan contract, you can look at the interest rate and any possible fees. It’s easy to compare loans this way. Once you’ve chosen a loan, sign the paperwork and send it in. ¬†

Pros of online car loans 

Some people can get good deals on car loans from online lenders, especially if they don’t have much time or are searching¬†for lenders who might be willing to work with people who have bad credit. Here are a few benefits of getting a car loan online.¬†

Competitive interest rates 

Some online lenders for auto loans might have lower interest rates than banks. For instance, if you have good credit, the APR on a 60-month loan for a new car from a traditional bank could be up to two percentage points higher than the rates from online lenders. It may not seem like much, but interest can add up quickly.  

Convenience and speed 

Online lenders can make it easy and quick to get a loan for a car. You can apply for an online car loan from an online lender at any time of day or night, from anywhere in the world, as long as you have a computer and access to the internet.  

You may be able to find out in just a few minutes if you’re prequalified but that completely depends on the lender. If you get prequalified, the lender will tell you how much you might be able to borrow, how much interest you might pay, and how long the loan might last. You still have to fill out a formal application for the loan if you want to be considered for it.¬†

Wide range of lender database 

Some online lenders may be more willing to work with people who have bad credit than others. But pay close attention to the loan terms and interest rates. Most of the time, your car loan interest rate will be higher if you have bad credit. 

Some online lender sites have a car loan calculator that can give you an idea of how much your monthly payment might be based on your credit score, how much you want to finance, how long you want the loan period to be, and how much you want to put down. 

online car loan

Cons of online car loans 

Online car loans might seem like a good choice when you consider their benefits. But here are some things to think through before you apply: 

Variable interest rates 

Even though some online lenders may offer lower interest rates than traditional banks, rates can still be higher if you have bad credit. Some online lenders who give loans to people with bad credit charge annual percentage rates (APRs) of 25% or more.   

Unfamiliar lenders 

As you look into your options, you may find online lenders that you don’t know. Do some research on a lender or network of lenders before you give them your personal information. Check to see if there are any complaints about the company at the Consumer Financial Protection Bureau.¬†

What to consider before signing up for the loan 

Tax: Taxes and registration fees are usually not included in the price your dealership gives you. Before you apply for an online car loan, you should think about these costs. 

Balloon payments:¬†Some car loans have low payments for a few months and then a big payment at the end, called a “balloon payment.” Make sure you can comfortably pay for this so you don’t have to search for other options. It‚Äôs better to refinance if this comes off as hefty for you.¬†

It’s easy to get a car loan online, but you might also want to look into what your dealership has to offer and even personal loans to make sure you’re finalizing¬†the best deal you can.¬†

Tips to find the best online car loan 

Research and compare quotes 

Get quotes from several online lenders to help you find the best car loan deal. You might also want to get quotes from banks or credit unions so you can compare them. 

Auto lenders may charge you with a prepayment penalty if you pay off your loan early in whole or in part. Go through the legal papers thoroughly so you know about any immediate or possible costs. 

Make sure you can afford monthly payments

If you use an online lender’s auto loan calculator to figure out how much you can borrow, make sure your monthly payment budget doesn’t go over. Keep in mind that fees and taxes may not be included in these calculators. When making your budget, you’ll also need to think about other costs, such as repairs, insurance, vehicle registration, and gas. If you set a budget for buying a car and stick to it, you can make sure you can pay for your car loan.¬†

online car loan

Bottom line 

It’s not difficult to find an online loan nowadays. At the same time, it is time-consuming to find out the best online car loan for you. Before you sign up for anything, make sure to shop around, do research and then finalize on a lender matching your preferences. If you have already signed up for one and find it unmanageable, you could always refinance your existing loan. 


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