How to Find the Best Auto Loans

When making a final decision about an auto loan, many people feel uncertain of where to start. Whether you're deciding between purchasing a new or used car, searching for a new auto loan or refinancing an existing loan, it is important to work with a lender with a good reputation who can provide you with the best loan options for your specific needs. Start with the end goal in mind, as choosing the right lender can make all the difference.


Buying a New vs. Used Car

When it comes to purchasing a vehicle, one of the crucial decisions you'll face is whether to buy a new or used car. This choice significantly impacts your finances, especially in terms of securing an auto loan. The cost differences between new and used cars can affect the amount you need to borrow, the interest rates you might receive and the overall financial burden of the loan. Understanding the financial implications of buying new versus used is essential to making a well-informed decision that aligns with your budget and long-term financial goals.
 

Is it Easier to Finance a New or Used Car?

Financing a new car is generally easier than financing a used car due to several factors:
  1. Lower Interest Rates: Lenders often offer lower interest rates on new car loans because new cars have higher collateral value and lower risk of breakdowns.
  2. Longer Loan Terms: New car loans typically come with longer repayment terms, making monthly payments more manageable. Check with your financial institution for available term length options.
  3. Incentives and Deals: Manufacturers and dealerships frequently offer incentives, such a zero-percent financing, cash rebates or special deals that are not available for used cars.
  4. Better Loan Availability: Lenders are more willing to finance new cars because they are less risky compared to used cars. This can result in more favorable loan terms.
However, financing a used car has its own set of benefits:
  1. Lower Purchase Price: Used cars cost less than new cars, which can result in smaller loan amounts and potentially lower monthly payments.
  2. Depreciation: New cars depreciate quickly, losing a significant amount of their value in the first few years. A used car has already gone through this initial depreciation, which means its value is more stable.
  3. Lower Insurance Costs: Insurance premiums for used cars are generally lower than for new cars.
Ultimately, whether it is easier to finance a new or used car depends on your financial situation, credit score and the specific deals available at the time of purchase.

Other Aspects of Buying a Car to Consider

Beyond securing an auto loan, there are other important factors to consider when buying a car:
  1. Depreciation:
    • New cars depreciate quickly, losing value as soon as they are driven off the lot.
    • Used cars have already undergone significant depreciation, making them more cost-effective in the long run .
  2. Warranties and Maintenance:
    • New cars typically come with comprehensive warranties and fewer immediate repair needs.
    • Certified pre-owned cars often include warranties and have been thoroughly inspected.
  3. Technology and Features:
    • New cars come with the latest technology, better gas mileage and lower emissions.
    • Used cars might lack some of the latest features but can still offer reliable performance.
  4. Insurance Costs:
    • Insurance premiums for new cars are generally higher due to their higher value.
    • Used cars usually have lower insurance costs, making them more affordable to insure.
  5. Reliability and Reviews:
    • Research the reliability and reviews of the models you are considering.
    • Have a mechanic inspect a used car before purchase to ensure it is in good condition.

Tips for Finding a Good Auto Loan

Finding the right auto loan can significantly impact your car buying experience, both in terms of cost and convenience. To help you secure the best financing for a car, here are some essential tips to consider when searching for a good auto loan:
  • Look for trusted auto lenders who provide expert advice and are known for providing excellent customer service, like SDCCU.
  • Find a lender who can quickly and easily qualify you through an online loan approval - it makes the process simple and seamless.
  • Look for lenders that can provide low interest rates and offer longer terms to lower your monthly payment.
  • Search for lenders that provide auto buying services for new cars, saving you time and money with hassle-free pricing from car dealerships. Learn more about SDCCU's auto buying services.
  • For peace of mind, search for lenders that can provide auto protection services like GAP, Mechanical Breakdown Insurance and payment protection services. Learn more about SDCCU's auto protection services.
While it's important to know what to look for in an auto loan, it's equally crucial to be aware of what to avoid. Here are some common pitfalls to steer clear of when choosing an auto loan:
  • Avoid auto loans that have prepayment penalties that are sometimes disguised as using the "Rule of 78s," where all payments go to pay off the full amount of the interest calculated on the loan before any payments are applied to principal.
  • Avoid pre-computed auto loans where loans are calculated on the entire amount of principle and interest into the loan. This kind of loan penalizes you by not allowing you to save money by paying off the loan early. No matter how qucikly the loan is paid off, the lender gets the full interest amount.
  • Avoid "no credit, no problem loans" from dealerships. The interest rate on loans from these dealerships can be much higher than loans from a credit union or other type of lender.1
  • Avoid taking a personal loan instead of an auto loan - personal loans are unsecured, which means the interest rates are higher than an auto loan, which is collateralized by the vehicle. According to Bankrate, the average annual percentage for personal loans is 12.31% as of Q4 2024.2
  • Avoid auto title loans that charge high fees and interest rates - it's not uncommon for lenders to charge an average APR of 300% on a short term loan that is usually paid 30 days later.1 Auto title lenders do not report your payments to the credit bureaus, so paying your loan does not build credit. What's more, if you don't pay your loan, the lender can simply repossess your car to satisfy the debt.
  • Don't rush the process. Impulsive decision-making can lead to poor terms or accidentally buying a car that does not fit your budget. Take your time to research, compare offers and negotiate terms.

Where Can You Find the Best Auto Loans?

When it comes to finding the best auto loan, credit unions stand out as one of the top choices. Unlike traditional banks, credit unions are member-focused, often offering lower interest rates, personalized service and flexible terms. Their not-for-profit status means they prioritize your financial well-being over profit, making them a reliable partner in your car buying journey.

What Makes SDCCU the Best Credit Union for an Auto Loan?
Make the smart choice and come to SDCCU for your auto loan. We offer new and used auto loans to get you in the vehicle of your dreams. SDCCU was vote the BEST Auto Loan Provider by The San Diego Union-Tribune Readers Poll for the 11th year. Our options include: low interest rates, long terms, flexible options and special buying power with our Signature Auto Buying Services that will help you save time and money. Apply for a SDCCU auto loan online before you start your vehicle shopping process. This can allow you to shop for your next vehicle more confidentely, as you will have a better idea of your budget. SDCCU is here to help so make sure to visit the SDCCU Auto Loan page for more information on how we can make the car buying process easy for you.

SDCCU offers expert financial tips to help you make smart money management decisions. Explore our blogs for the financial resources on various financial topics today.

1. The interest rate on loans from these dealerships can be much higher than loans from a credit union, or other type of lender.https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-dealer-arranged-and-bank-inancing-en-759/
2. According to Bankrate, the average annual percentage rate for personal loans was 12.31% as of Q4 2024. https://www.experian.com/blogs/ask-experian/what-is-the-best-term-length-for-a-personal-loan/