If this is your first time getting a car loan, you probably have a million questions: “Should I get a loan from the dealer?” “Are online lenders legit?” — and everything in between.
There are actually three main ways to get a car loan: dealer financing, banks and credit unions (aka traditional lenders) and online lenders. Here’s a breakdown of each and how to use them.
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Dealer financing
Dealer financing is where the car dealer helps you get a loan from a lender and then sells your contract to them. So, instead of walking into a bank and applying for a car loan, you can walk away with a loan from the dealership you visit.
You don’t make payments to the dealer directly; the dealer sells your contract to a lender who will service your loan (this is who you’ll be making payments to). So, the dealer is kind of like a middleman.
Approval is usually fast and you may have more flexibility here if you have a lower credit score. In some cases, you may even be able to take advantage of special discounts or special terms if the dealer offers any manufacturer-sponsored programs and rates. Your car just might have to fall within certain requirements to take advantage of these offers, such as being a certain model, or you’d have to commit a certain down payment.
The downside to dealer financing is that this option often comes with higher interest rates so dealers can take a decent cut of the profits. However, dealer financing is a quick and convenient option if you don’t want to do any of the legwork and if you’re willing to buy a car that checks off pre-determined requirements for special manufacturer rates and deals.
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Banks and credit unions
Traditional financing is where you just go to neighborhood banks and credit unions to apply for a car loan. This may be the bank you’ve used since you graduated college or the credit union your family members have been using for decades. Or maybe there’s just a national bank you hear a lot about and now this is your chance to finally become a customer.
You’d apply for a car loan the same way you’d apply for any other form of credit: submit an application online or in person. You’ll have to compare offers and rates on your own, but banks and credit unions usually offer lower car loan rates compared to dealers (but sometimes still higher rates compared to online lenders).
If there’s a credit union you’re already a member of, consider shopping around for a loan from your branch. Also, if you’re an existing credit union member or bank customer, ask about special deals or promotions for existing customers.
Capital One Auto Finance offers loans for new and used cars, and loan amounts start at $4,000.
Capital One Auto Finance
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APR
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Loan types
New vehicles, used vehicles, refinancing
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Loan amounts
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Terms
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Minimum credit score
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Fees
There is no early payoff penalty. Late fees depend on the lender.
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Availability
Capital One Auto Finance offers car loans nationwide except in Hawaii and Alaska.
Pros
- Lends to borrowers with bad credit
- No early payoff fees
- Prequalification available
Cons
- Only available for vehicles from participating dealers
- You must apply at the dealer to get the final loan terms
PenFed Credit Union also offers car loans, but you’ll need to be a member to receive funding. Loan amounts from this lender start at just $500 and PenFed is able to offer some of the lowest car loan rates — even lower than what some big-name banks currently offer.
PenFed Auto Loans
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APR
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Loan purpose
New vehicles, used vehicles, refinancing
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Loan amounts
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Terms
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Credit needed
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Early payoff penalty
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Late fee
20% of the overdue amount, up to $25
Pros
- Loan amounts start at $500
- No early payoff fees
- Prequalification available
- Cash incentives through car-buying service
- Co-borrowers allowed
Cons
- Credit union membership required
- Late payments subject to fees
Federally Insured by NCUA. To receive any advertised product from PenFed, you must first become a member of the PenFed Credit Union. Rates and offers current as of October 21, 2025, and are subject to change. Actual APR will be determined at the time of disbursement and will be based on application and credit information. Rates quoted assume excellent borrower credit history. Not all applicants will qualify for the lowest rate. Rate depends on term. New vehicles are where you are the original owner and the vehicle is a current 2024 model year or newer and has less than 7501 miles.
Online lenders
Online lenders are your fintechs and neobanks that don’t have in-person branches you can visit so everything is done exclusively online. Because they don’t have the overhead costs of a traditional bank, they’re usually able to offer lower interest rates and other terms that help customers save money.
Approvals are also usually fairly quick and lenders can usually accommodate different credit score profiles, whether you have excellent credit or poor credit (though, your interest rates will be higher if you apply with a low credit score).
CarMax Auto Finance is one online lender that specializes in used car sales and helps match you to a lender that fits your needs. CarMax doesn’t charge an origination fee or prepayment penalty, but late fees can vary by state and contract. (See below for more details.)
CarMax Auto Loan
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APR
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Loan type
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Loan amounts
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Terms
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Minimum credit score
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Fees
No origination fee or prepayment penalty but late fees vary by state and contract.
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Availability
CarMax does not lend in Alaska, Arkansas, Hawaii, Montana, North Dakota, South Dakota, Vermont, West Virginia or Wyoming
Pros
- Open to borrowers with bad credit
- No early payoff fees
- Prequalification available
- 100% online application process available
- Low minimum loan amount
- Allows co-borrowers
Cons
- Financing is only available for cars sold at CarMax
- Not available in all states
- Prices are non-negotiable
iLending is another online lender that can help you find the car loan that’s right for you. To apply, you’ll need a minimum income of just $1,500 per month, a 560 credit score and a credit history of at least six months with at least one account. Eligible borrowers can apply for a loan of up to $150,000. (Scroll down for more information and to get started.)
iLending
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APR
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Loan type
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Loan amounts
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Terms
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Minimum credit score
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Fees
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Availability
iLending lends in all 50 U.S. states except Hawaii.
Pros
- Low minimum credit score
- Longer repayment terms available
- Allows borrowers to skip payments
- No application fee
Cons
- Only offer refinancing, not financing for new or used cars
- Fee structure not clear on website
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