Find the Best Car Loans in Detroit, MI

How to get an auto loan in Detroit

Detroit residents have plenty of auto loan options available. They’re available from banks, credit unions, dealerships and online lenders. Many people wait to arrange financing until after they choose a car, but getting a car loan before shopping has multiple advantages:

• Sets a budget before shopping
• Protects from dealer markups
• Improves negotiation position
• Makes it easier to avoid up-sales
• Helps you get a better rate

By getting pre-approved from two to three lenders, you’ll be able to compare offers and choose one that works best for you.

Comparing auto loans in Detroit

Lenders in Detroit have different requirements to qualify for loans. In addition to credit score requirements, most lenders require long-term employment or consistent, dependable income. A hefty down payment or including a co-signer on your loan are options for improving your chance of being approved if you have poor credit.

Your credit score is the most significant factor in determining your annual percentage rate (APR). Detroit residents with excellent credit qualify for APRs between 3 and 5 percent, while those with poor credit receive loans with APRs in the low-to-mid teens.

Just a few points in the APR can make a significant difference. The table below shows the likely APR and monthly payments for a 60-month (five-year), $20,000 car loan based on credit score.

Monthly payments on a five-year loan for $20,000

Most car loans in Detroit are between three and seven years. Taking out longer loans lowers your monthly payments but increases the total cost of the loan because of additional accrued interest. The chart below shows the interest accrued on a $20,000 loan over multiple terms and with different APRs.

Interest accrued on $20,000 car loan

The best way to get a low APR is to shop around and compare your best offers.

Fees and additional charges when purchasing a car in Detroit

When shopping for cars in Detroit, make sure your loan amount covers both the purchase price and any additional costs associated with the purchase, such as vehicle registration, car insurance and title transfer. Other possible charges and fees include:

• Gap insurance: If you owe more on your vehicle than its value, gap insurance covers the difference. Lenders cannot require you to purchase gap insurance, but they can add it to your loan without notifying you.
• Origination fees: Lenders charge origination fees to cover the cost of processing the loan. These can sometimes be negotiated down.
• Document preparation fees: The dealership generally charges document fees to pay for preparing the car’s paperwork. In Michigan, document preparation fees are limited to 5 percent of the cash value of the vehicle, up to $210.
• Finance markups: When you finance through a dealer, they can add a finance markup of up to 4 percent. For example, if you’re approved for an interest rate of 6.5 percent, the dealer can increase its profit by charging a markup rate of 8 percent.
• Prepayment penalties: Paying off your loan early saves money on accrued interest, but lenders may charge you a penalty for doing so.

The Consumer Financial Protection Bureau offers handy tips and worksheets for finding the best auto loan and understanding which fines and fees are negotiable.

Michigan offers protections for consumers buying a used car through the state’s Auto Lemon Law and the ability to purchase the complete title and registration history for a vehicle for only $11.