Picking out a new car is exciting. Navigating through auto loan options is not. In the Motor City, choosing the right car loan is part of the equation to ensure a great buying experience. Our partners at ConsumerAffairs researched the best car loans in Detroit to reduce the stress of buying a new vehicle.
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.
LightStream deposits funds into your bank account so you can make a cash purchase at the dealership, saving you time, money and hassle. The company has an easy-to-use online platform, same-day funding, competitive rates and a promise to beat any qualified loan offer. Detroit customers say they appreciate how easy it was to get approved.
Auto Approve is perfect for anyone who has an existing auto loan with high rates or unfavorable terms. Auto Approve offers low-rate refinancing loans and a quick, simple and no-cost application process. Detroit residents praise the smooth process and say the company is willing to work with people with less-than-perfect credit.
LendingTree lets you submit a single application for your loan. The company collects the best offers and lets you compare them. LendingTree also has lender reviews, a car deals database and insurance quotes. Detroit customers say the process is efficient and easy, but some warn it resulted in hard credit checks without their approval.
This lender offers new and used auto loans, refinancing, a two-minute offer form, up to four offers at once and money in your account in as little as 24 hours. Detroit borrowers report great service, smooth refinancing transitions and agents who take the necessary time to make sure you understand the offers and the process.
In addition to pre-approval, traditional loans and refinancing, Capital One has a great website, virtual services and educational materials. The company has a database of vehicles and dealers so you can find a car from the comfort of your home. Detroit customers say the company has competitive rates for those with good credit.