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The Essential Guide to Car Loans: Everything You Need to Know

When considering buying a new or used car, most of us take advantage of some form of auto financing. A car loan is a convenient way to get the car you need and pay for it in smaller installments over time. But there are so much more to auto loan offerings, and many different ways to get yourself behind the wheel.

In this guide, we’ll cover the ins and outs of auto loans and refinancing so you have everything you need to get the best car loan for you.

Auto Loans 101: What is an Auto Loan?

Car loans fall under the category of secured personal loans (since your car is the collateral). With personal loans, the lender makes an agreement with you to finance your car purchase under a specific set of terms and conditions. Your car loan provides you with the funds to buy your vehicle and pay for your purchase with regular payments over a pre-established period of time.

A few of the key terms you’ll see when it comes to car loans include the following:

Terms and Conditions

Terms and conditions for an auto loan spell out exactly what amount is being borrowed, how long the borrower will be making payments (term length), the interest rate, down payment amount, insurance requirements, instructions for paying off the loan, and other pertinent information.

While it can be easy to gloss over these in the excitement of buying your new car, you should always read the loan’s terms and conditions to make sure you understand everything you’re agreeing to under the car loan agreement. If you ever have any doubts, just ask our Team Members who are happy to walk you through all the details and options available to you.

Interest Rates vs. APRs

An interest rate is how much your lender is charging you for borrowing money to pay for the car. Interest rates will also be listed as annual percentage rates (APR), which includes additional fees to compute the overall interest rate being paid. Because they encompass more information, APRs tend to be a more accurate representation of what you’ll actually end up paying over the life of the loan and allow you to more easily compare loan programs.

Down Payment

A down payment is the amount of money paid upfront towards the purchase of the new or used vehicle. Sometimes trading in another vehicle can count as a down payment towards the new vehicle you’re buying. Other times, this payment is made in cash—or even a combination of cash and a trade in. Down payments are typically written as a percentage of the total purchase price.

For example, a 20% down payment listed for a $20,000 vehicle would mean paying $4,000 at the time of purchase and financing the remaining $16,000.

Principal and Interest

With an auto finance, once you know the amount you’ll borrow—and for what term length—you can calculate your principal and interest payment. Continuing the example from above, if you finance $16,000, here is what the monthly principal and interest payments would be at a few different APR and terms:

3.5% APR for 48 months: $357.70
3.5% APR for 60 months: $291.07
3.8% APR for 72 months: $248.87
4.35% APR for 75 months: $244.03

As you can see, longer terms can lower your monthly payment, but you’d pay back more over the life of the loan. From the examples above, here are the total amounts paid back for each auto financing terms:

3.5% APR/48 months = $17,169.41
3.5% APR/60 months = $17,464.04
3.8% APR/72 months = $17,918.42
4.35% APR/75 months = $18,302.26

If it’s important that you have a lower monthly car payment, then you may decide to go with a longer term. You could ask the lender if you can put extra money on the auto loan when it fits your budget. This can help you to pay less back, overall—and, at SCCU, the answer is “yes.” You can always put extra money down on your auto loan with no pre-payment penalties.

Some lenders, though, charge prepayment penalties (a fee for trying to pay off your loan early). When that’s the case, any money you could potentially save on interest by paying more could be lost to the prepayment penalties. So, be clear about how this works with your auto finance agreement.

For more on this subject, here is a more detailed comparison between a 60-month and a 72-month auto loan.

Secured and Unsecured Loans

Even though car loans are classified as personal loans, there are some differences between the two. For one, personal loans are usually unsecured, which means it does not have collateral tied to it. Collateral is something like property or assets that are promised to a lender to secure the loan. In the event that the borrower defaults on the loan, the lender has a right to take possession of the collateral.

Auto loans are secured loans because the vehicle being purchased is usually used as collateral in the agreement. Remember that, with a secured loan, a default means the lender can take the collateral, which could mean a repossession of the vehicle if payments aren’t made.

Auto Loan Requirements

Each financial institution can have unique auto loan requirements. In general, though, they include:

Meeting a minimum credit score requirement
Having a steady source of income
Demonstrating the required debt-to-income (DTI) ratio

Auto Loan Credit Score Requirements

First, there are credit reports and credit scores. Although connected, they aren’t the same thing. Three major credit bureaus exist—Equifax, Experian, and TransUnion—and each of them receives information from lenders and other sources. They compile the information into credit reports and update them regularly when new information arrives.

You are entitled to a free annual credit report from each bureau by requesting one at AnnualCreditReport.com. If you spot any inaccuracies, contact the corresponding bureau and request that they fix any errors. This matters because these reports generate your credit scores, using the bureau’s unique algorithm—and, in turn, financial institutions use these credit scores when making lending decisions. So, having a high enough credit score is a key component of auto loan requirements.

Lenders typically use FICO® Score. In this system, credit scores range from 300 to 850. The higher the score, the better. Here are the ranges:

Poor: 300-579
Fair: 580-669
Good: 670-739
Very good: 740-799
Exceptional: 800-850

SCCU guidelines include an auto loan credit score of at least 640.

To boost your credit scores (it can take a bit of time):

Make all payments on time; it can help to set up automatic payments if the funds are consistently available to cover expenses.
Pay down credit card accounts if using more than 30% of available credit. When you pay down your “credit utilization rate,” this can help your credit scores.
Have a mix of revolving debt (credit cards, for example, and/or lines of credit) and installment loans, which includes auto loans, personal loans, and student loans.

Steady Source of Income

When lenders review applications, they want to ensure that the borrower will be able to pay back the loan. So, having an appropriate income will also be one of the auto loan requirements. What’s “appropriate” will depend upon your unique financial situation, which is why DTI ratios are considered.

DTI Ratios

To determine yours, add up your monthly debt payments: mortgage or rent, credit cards, personal loans, and so forth. You’ll also want to include the estimated payment for the vehicle you want to purchase. You can use our auto loan calculator.

Then, calculate your monthly pre-tax income. Now divide your total debts by your monthly gross income and the result is your DTI. Lenders will have DTI requirements and, if yours is too high, then you can create a strategy to pay down debt. Two types of consider include:

Prioritize credit card and personal loan debt by interest rate, highest to lowest. Make minimum payments on all accounts and put whatever extra money you can afford on the highest interest debt. Once that’s paid off, focus on the next highest. As you pay down debt, your DTI will go down (assuming a steady income).
Prioritize credit card and personal loan debt by the outstanding balance, highest to lowest. Repeat the process described above, whittling down debt strategically.

With this understanding of auto loan requirements, here are steps to master the process.

Mastering the Car Loan Process

Getting your car loan involves a lot of numbers and paperwork, but it’s easy to take a few proactive steps before you ever look at vehicles that can save you money in the long run.

1. Check Your Credit Score: The very first thing you should do when you’re in the market for a new vehicle is to check your credit score. As described above, with any kind of auto financing, your credit score is a major factor in the terms you’ll receive on your new loan. When you have less than stellar credit, you can take steps ahead of time to help improve your score.

Notching up your credit score can take a little time, so start the process early if you can. Since most auto loans are made based on creditworthiness, improving your credit score is your path to a better interest rate, which will save you money over the life of your auto loan. As an added bonus, you can track your FICO credit score for free using the SCCU Online Banking or Mobile app.

2. Know Your Auto Financing Options: When it comes to car loans, you have many options. Knowing what options are available to you ahead of time gives you more negotiating power in finding the perfect car loan to meet your needs. Term length, interest rates, and other important aspects of the loan can vary considerably from one lender to the next.

Often, credit unions are able to offer a lower interest rate on car loans and other financing simply because of how they’re structured, so be sure to do your homework before heading to the dealer.

3. Try to Keep a Low Term: Your car loan term is how many months your loan will take to pay off. Stretching a term to its maximum may sound like a great idea for getting a lower monthly payment, but you’ll also end up paying more in interest over the life of the loan. Knowing how much you can reasonably afford each month is going to take a little work and starts with budgeting. Our online calculators and budgeting worksheet help make it easy to see what you can reasonably afford. With this information, you’ll be ready to find a car loan that best fits your financial situation.

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"I purchased a vehicle very recently and SCCU had the BEST interest rate of all other financial institutions."

Mike V.

4. Put as Much Down as You Can: A lot of dealerships offer deals like “no money down” but, while spending less today can be tempting, it can end up costing you down the road. Putting more money down in the beginning means you’ll end up financing less, which translates to less interest being paid out over the life of the loan. Putting down 20% is a good starting point and can translate into significant savings while you finance the remainder. If you don’t have 20% to put down on a new car, consider waiting and saving up until you get there—your future finances will thank you!

5. Use Cash: There can be a lot of extra fees added to the final car price that aren’t included in the sticker price. Tax and title fees, dealer fees, warranties, and other additional costs can really add up. If you’re able, use cash to fund these additional fees rather than rolling them into your new auto loan. When you choose to finance all these fees, you can find you owe more than the car’s worth before you even drive off the lot, a financial situation known as “being underwater” or “upside down,” neither of which is desirable.

If you do owe more than the vehicle is worth and the car is stolen or totaled, your insurance company might not provide enough to get a new vehicle. This is a situation where GAP insurance is vital, a topic we’ll touch on in greater detail later.

Coming prepared with everything you need to get your auto loan before you head to the dealership gives you the ability to think long term about this important purchasing decision. By implementing just a few easy steps like the ones outlined above, you’ll have the best setup possible for your new ride.

Negotiating to Get Better Car Loan Terms

You may have heard the phrase “everything’s negotiable” and, while that might not hold true for every event in life, it can be the case with car loans. Loan offers, as known as underwriters, handle car loans by looking over all of the facts of the transaction, including the borrower’s financial situation, the asset being purchased, and if the deal makes financial sense for the financial institution. When you’ve had a chance to research different loan options, you’re better prepared to ask for better terms from the lenders.

Some lenders are more willing to work with you than others, but it never hurts to ask and you may be able to score some major savings. Generally, credit unions are able to offer better interest rates and terms than large, traditional banks, so use this to your advantage as you shop for the best loan for your situation.

Getting Pre-Approved for an Auto Loan

The first thing to understand about a pre-approval is that it’s not signing on the dotted line for your auto loan. Pre-approval simply states how much the financial institution is willing to loan to you and the interest rate you can expect. Many pre-approvals come with a set time where the offer is valid, giving auto shoppers a window for checking out different vehicles. A pre-approval is a smart choice because it allows you to have everything you need to know about your loan hammered out ahead of time, before you get to the dealership.

Buying a new car can be very exciting and sitting in the financing manager’s office with what seems like an attractive offer isn’t the best time to try to evaluate if their loan package is the best available. By getting your pre-approval ahead of time, you’ll also know how much you’ll have to spend before you shop so you aren’t disappointed after discovering what financial institutions are willing to loan you. You can effectively use this limit during negotiations to try to get the best deal possible on a new vehicle.

Getting pre-approved for an SCCU auto loan comes with the advantage of our low rates and a fast approval process for both new and used vehicles. When you receive a pre-approval from us, it’s good for 30 days as you shop for your vehicle. If you need it extended, please contact us.

At SCCU, we don’t charge application fees, don’t have prepayment penalties, and have flexible terms with our no payments for up to 120 days offer

. With all of this information in hand, you’ll be walking into a dealership with the same clout as an all-cash buyer—giving you negotiating power.

A note about pre-qualification: Getting pre-qualified can be a good first step to understanding what your car loan interest rate and payment could be. This process offers some guidance to how much of a vehicle you can afford, but it’s missing crucial steps: a review of your credit scores and other financial information. A pre-approval, meanwhile, takes all of these factors into account, providing lenders and dealerships with valuable insights into what you can afford.

Choosing the Right Vehicle

Plenty of makes and models are available today. Many people have favorites and are loyal to a certain manufacturer while others like to shop around. No matter what dealership you choose, here are issues to consider:

How will you use your vehicle? Local driving only? Plenty of long distance driving?
What is your typical daily commute? Stop and go? Short or long?
How many people will you typically transport?
How much space do you need for people and cargo?
Will you mostly drive on roadways or will you go off road?
What features are on your must-have list? Your want list?

Determine what vehicle makes and models would suit your needs. See what they cost when new and investigate the availability of used models and their condition. If certain options seem out of your budget, what are comparable models that might fulfill your needs at a better value?

When you find a vehicle that fits your requirements, take it for a test drive. In fact, consider driving at least three different vehicles so you have something to compare. If possible, drive each vehicle on a route that would be typical for you—perhaps mimicking how you would drop your children off at school and then head to your workplace. How comfortable is the vehicle? Is it a smooth ride? Easy to handle?

Sit in the back seat. If you’ll use car seats or booster seats, check to see how easy they would be to install. Make sure there’s enough leg room, trunk space, and more. Is there too much space? Would a smaller vehicle make more sense? What is the gas mileage in city traffic? On the highway? Take your time because a vehicle is an investment.

A question that often arises is whether it makes sense to buy a new or used vehicle—and there are benefits to each.

New Car Benefits

Today’s vehicles come with technologies that would have seemed like science fiction not that long ago. From advanced driver assistance systems to connected mobile apps, lane change guidance, 360-degree cameras and more, choosing a new vehicle can allow you to take advantage of these advances.

When you buy a new vehicle, you can often pick and choose what technologies you want. If you have teen drivers, for example, the alerts provided through specialized software can be appealing. If ordering a vehicle, you can select exterior and interior colors and more.

New cars come with warranties, so you’ll almost certainly pay less for repairs and maintenance in the first few years when compared to a used car. Plus, car loan rates are typically lower for new vehicles than used ones.

Used Car Benefits

If you don’t need the bells and whistles found on the latest models and you want to save money, then a used car may be a wise choice. You can still benefit from the modern technologies in vehicles that are only a few years old. Plus, while a new car depreciates more quickly, perhaps as much as 20% within its first year, used models usually don’t depreciate as fast.

On the other hand, although a used car will likely cost less, the car loan rates are usually higher and terms may not be as long, the warranties won’t be as comprehensive, and the time for repairs and maintenance will probably arrive more quickly. There is no one right answer, so weigh the pros and cons, consider what you can comfortably afford, research what’s available, and then make an informed choice. Here’s more information about choosing between a new or used car.

Auto Financing From the Dealership

Now that we’ve gotten this far, you may be thinking that you need to avoid dealer financing at all costs. While a lot of in-house financing options at dealerships aren’t able to offer the same low rates and great terms as credit unions, there are opportunities to find the perfect car and get financing all in one smooth transaction at the dealer.

To help you have a seamless experience, we’ve partnered with participating dealerships to offer SCCU auto loans straight from the dealer. Participating dealerships are Watchdog approved, which means they’ve demonstrated a commitment to helping consumers get a great vehicle with great financing terms. These dealerships can take your application and submit it straight to us for a fast and easy auto loan process. Request a dealer near you for more information on this exciting program.

Getting the Best Car Loan Rates

Comparing your options for auto loans definitely needs to include a rate comparison as this is one of the most impactful parts of how much you’ll end up paying over the life of the loan. Even just a few percentage points can mean thousands of dollars saved (or spent) on an otherwise similar car loan.

So who has the best rates on auto loans? Credit unions are able to offer some of the best rates available because of how these financial institutions operate—as a cooperative of members that pool their money together, they return surplus income to members with higher dividends and better rates on loans. So, new car loans can come with attractive rates and terms that other lending institutions and car dealerships won’t be able to match.

But the number one thing to scoring the best rate on your new car loan is to compare your loan options. Though your first loan application can temporarily ding your credit score, you typically have a 14-day window to rate shop with additional lenders without additional hits to your credit. And with no fees to get pre-approved for a car loan, you can see exactly how much you can borrow and the payment your new rate gets you. Compare how much you’ll pay with other lender options to see who has the best overall package for your individual financial situation. Comparison shopping is by far the best way to get a great rate on a new auto loan.

Auto Loan Purchase Interest Rates

Effective Date: November 19, 2024
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Payment Period	Purchase APR^* "As Low As"	Minimum Loan Amount	Payment per $1,000
Up to 48 Months	5.74%	No minimum loan amount	$23.37
Up to 66 Months	6.24%	$10,000	$17.94
Up to 75 Months	6.74%	$12,000	$16.38
Up to 84 Months	6.99%	$20,000	$15.09

Rates shown are fixed Annual Percentage Rates for vehicle model years 2024 and newer. Rates are subject to change. Your actual rate and terms are affected by your creditworthiness, term selected, vehicle type, and model year. Certain restrictions apply. You may be asked to furnish a down payment. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR.

How to Refinance an Auto Loan

So maybe you didn’t check out your favorite credit union’s ultimate guide to car loans ahead of time and inadvertently got stuck in an auto loan with less-than-favorable terms. What options do you have? Not to worry; SCCU has you covered. We make it easy to get out from under an auto loan from a different lender by refinancing your loan.

Refinancing to one of our lower car loan rates means you can save over the life of your car loan. With SCCU, you’ll enjoy a full list of additional benefits that comes with our auto loans, including no application fees, flexible terms⁹, our no payments for up to 120 days offer¹¹, a simple electronic closing, and SCCU membership with free Online and Mobile Banking where you can easily make your monthly payment.

How Auto Refinancing Works

Refinancing your auto loan means you’ll be completely replacing your current loan with a brand-new car loan. The new loan serves to pay off all the debt that’s owed on your former loan so that you’re left with a single car loan. Your new car loan has its own interest rate, terms and conditions, and all the other details typically included in a car loan.

Let’s look at a refinance auto loan example:

You have a 60-month, $40,000 car loan at a 5% APR that you’ve paid down to $20,000 over the last few years.
You find that SCCU can offer you a refinanced car loan for the remaining $20,000 at a lower rate, such as 3% APR. You also discover you can stretch out your term a few extra months. With the lower interest and more time to pay, you’ll decrease how much you have to pay each month. Or you decide for a shorter term for the same monthly payment but less total cost over the life of your loan.

If refinancing interests you, here is more information.

Is Auto Refinancing Always the Best Choice?

Even though we love to help members save money by refinancing their auto loans, sometimes refinancing isn’t the best financial move for every borrower. Lowering monthly payments, taking advantage of better interest rates, and changing financial situations can all be reasons that refinancing makes sense at the moment, but things can change.

At SCCU, we want our members to be in the best position when it comes to their financial wellness, so we work with you to help you understand what a new loan will look like and mean for your financial situation. Take the time to run the numbers through our auto refinance calculator to help determine if this is the best course of action for you. With no application fees on auto refinancing, it never hurts to explore your options to see how this will affect your individual financial situation.

Still have questions? Request a loan consultation and we’ll help to guide you through the entire auto loan refinancing process.

Insurance and New Car Loans

Insurance can seem like an afterthought when it comes to car loans, but this important protection is often critical to getting the car of your dreams. Almost every state in the U.S. has a requirement for car insurance in order to drive a vehicle. In Florida, for example, you’ll need proof of Personal Injury Protection and Property Damage Liability automobile insurance to register your vehicle.

Your financial institution will also in most cases require insurance coverage to secure an auto loan. SCCU requires collision and comprehensive coverage for all vehicle loans.

Do I Need GAP Coverage with a New Car Loan?

Guaranteed asset protection (GAP) coverage works like this: if the vehicle you just financed is stolen or totaled, you could end up owing more money than your insurance company pays out. That would leave you having to cover the difference out-of-pocket. GAP covers the difference for you.

While it’s not always a requirement, GAP insurance has been known to come to the rescue in different situations. Times when GAP insurance makes the most sense include:

No money down: When you don’t put a lot of money down for a new car loan and have a long term, you may owe more than the actual value of your vehicle, especially for the first couple of years in most cases.

Luxury vehicles: You purchased a vehicle that depreciates quickly, such as a luxury vehicle or certain types of SUVs. As above, this can mean that you owe more than the value of the vehicle.

Type of insurance payout: If you get in a wreck with a new car, your insurance company typically pays claims based on actual cash value rather than full-replacement value. This means that, rather than getting a brand new car to replace the one that was wrecked, you’ll get the value of the car at the time of the claim incident (as a check), regardless of how much you owe.

GAP insurance can be a lifesaver in the right situation. To learn more about this offering, check out GAP coverage through SCCU.

Benefits of Credit Union Auto Loans

Throughout this guide, we’ve referenced benefits that SCCU can offer you in auto finance/refinance situations. Here is a more in-depth look at why credit union auto loans often make sense for consumers.

First, credit unions are member owned. So, there’s no group of executives deciding what direction SCCU should go. Instead, a board of directors is elected with each account holder serving as a member of the credit union. Because of this structure, the decision-making board and the members of the credit union have mutual interests. What’s good for one is good for the other.

As a closely related benefit, credit unions are not-for-profit organizations. This means that, rather than a strong focus on continually increasing profits, credit unions typically offer higher interest rates on savings and checking accounts and lower rates and fees on credit union auto loans, mortgages, personal loans, and more. In other words, credit unions return those profits to the members through discounts and rewards.

Plus, the National Credit Union Administration (NCUA) insures the deposits of account holders at federal credit unions and the majority of state-chartered credit unions. This is comparable to what the FDIC does with traditional banks and provides assurance that your money is secure at SCCU.

Finally, credit unions typically offer more personalized service than big banks. This can include more member-friendly auto loan requirements, exclusive benefits, and an overall rewarding experience.

SCCU Membership

Founded by seven members on June 7, 1951, as Patrick Air Force Base Credit Union, we originally served 28 members with $372 in assets with a mission to serve members better with accounts and loans. Since that time, SCCU has grown to serve more than 500,000 members with more than $7 billion in assets while still focusing on the financial wellness of each of our members.

Today, SCCU is the third largest credit union in Florida, serving members in 34 counties. Although we’ve grown significantly and changed our name to better reflect our expanded footprint, here’s what has never changed: We still exist to serve our members through cooperative ownership. We still return our profits to our members through lower loan rates and fees, among numerous other benefits. We’re here for you.

Apply for an SCCU Auto Loan in Just Minutes

Fast approval decisions, no application fees, low rates⁸ for new and used vehicles, and flexible terms⁹ are just some of the many benefits that come with working with SCCU for your new car loan.

Whether it's getting pre-approved for a new auto loan to purchase a vehicle, an auto loan refinance, or securing auto financing at the dealership, SCCU has a complete suite of options available to help you find the best financing options available. If you have any questions along the way, you can always sit down with one of our helpful express service associates.

Please call the number that’s most convenient to you:

Brevard: 321-752-2222
Broward: 954-704-5000
Miami-Dade: 305-882-5000
All Other Areas: 800-447-7228

Compare your auto loan options at SCCU today!

APR = Annual Percentage Rate
¹CALCULATOR: The information provided by these calculators is intended for illustrative purposes only and is not intended to purport actual user-defined parameters. The default figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult a financial professional prior to relying on the results.
²TERMS: Terms available up to 84 months for auto loan purchases and auto loan refinances, up to 240 months for boat and RV loan purchases, and up to 72 months for motorcycle loan purchases and are based on your credit quality, vehicle type, model, and year. Our usual credit criteria apply. Your term may be different. Qualified borrowers only.
³RATES: Rates are subject to change. Rates shown are fixed Annual Percentage Rates and are affected by your credit quality, model year, term selected, loan-to-value (LTV), and payment method. Your rate may be different. Qualified borrowers only. Our usual credit criteria apply. You may be asked to furnish a down payment. Rates shown for auto purchases/auto refinances are fixed Annual Percentage Rates for vehicle model years 2024 and newer. Rates shown for motorcycle purchases are fixed Annual Percentage Rates for vehicle model years 2021-2025. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR.

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