How we rate car loans
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If you are looking to borrow money to buy, refinance or lease a car, a auto loan could be a great option for you. There are many lenders to choose from. We review them and their loan offers in reviews and guide that help you make the best borrowing decision possible.
To ensure that we evaluate each of them equally, we use a rating system which takes into account a range of factors from interest rates and fees to customer support and ethics. We look at the pros and cons of each company and product, comparing them with others available so you can decide which personal loan is right for your particular needs.
What we look for when scoring auto loans
We rate all auto loan products in our reviews and guides on a scale of 1 to 5. The overall rating is a weighted average that takes into account seven different categories, some of which are rated more heavily than others. They are:
- Interest rate (20% of note)
- Fees (20% of the bill)
- Duration and loan amounts (15% of the rating)
- Borrower accessibility (15% of score)
- Variety of loans (15% of grade)
- Customer support (7.5% of score)
- Ethics (7.5% of grade)
The weighting of each category is based on its importance to your borrowing experience. Rates and fees have the most direct impact on the overall cost of your loan, which is why we weigh them the most. Customer support and ethics are still very important parts of the borrowing experience, but are not directly tied to the terms of a personal loan, so they have less impact on the overall rating.
Interest rate (20%)
We primarily look at the minimum interest rate offered by a lender to determine its rating. Many car lenders do not list their maximum rates, which makes it difficult to factor this into our rating. We look at how often the floating rate changes and what metrics are used to change rates.
- A lender will receive 5 out of 5 if its minimum APR is one of the lowest in the market (around 2.99%) and it keeps its rates relatively stable
- If a lender has a higher minimum APR but still has low rates (around 4%) and changes their rates a bit more frequently, they will win 3 out of 5.
- Lenders with very high minimum rates that fluctuate frequently will get 1 out of 5.
Lenders can charge a variety of fees, from origination fees to late payment penalties. We prioritize lenders that charge little or no fees.
- If a lender does not charge any fees, they will get a 5 out of 5.
- Lenders with minimal origination fees and reasonable late fees will receive 2.5 out of 5.
- Lenders will receive a 1 out of 5 if they charge high origination fees that take a significant chunk of your total loan amount and late fees that accrue if you are late on payments.
Duration and loan amounts (15% of the rating)
We determine whether the company has a variety of repayment terms, providing options for borrowers who want to repay their loans quickly and save on interest, as well as those who want to spread their costs over several years. However, we try to focus on lenders who do not force borrowers to take on loans that are too long.
Longer terms usually come with a higher interest rate that you will have to pay for longer. Also, the longer the term, the more likely the value of your car will decrease to the point where you owe more than it is worth. Generally, 60 months is considered the maximum tenure you should consider.
We also look at the minimum and maximum loan amount for a business. A smaller minimum makes a business more accessible to borrowers who need a small amount of financing for their car. A high maximum allows borrowers who want a more expensive car to get one.
We also look at whether the company sets repayment terms or whether the borrower is able to choose.
- A lender will earn a 5 out of 5 if it has a minimum loan of at least $2,500 and a maximum of at least $50,000, coupled with terms between one and seven years.
- Businesses with a minimum loan of $5,000 or more or a maximum loan of $35,000 or less, or a long suggested term (approximately seven years) get a 3 out of 5.
- Lenders will receive a 1 out of 5 whether they have extremely tight loan amount ranges or select your term length for you from a limited number of options.
Variety of loans (15%)
We see if the lender offers new and used car loans, refinances and lease buyouts. The more options, the better.
- Lenders who have all four options will get 5 out of 5.
- Lenders with three of the four options will win 3 out of 5.
- Lenders will receive a 1 out of 5 if they only have one option for the loans they make.
Borrower accessibility (15%)
Lenders can only meet the needs of borrowers in certain states, or with certain credit scores and income levels. We look at how accessible the lender is to borrowers from diverse backgrounds.
- Lenders who are available in all states and have minimal or no credit requirements will get 5 out of 5.
- A business that is available in nearly every state or has slightly stricter eligibility criteria will receive a 3 out of 5.
- Lenders will receive a 1 out of 5 if they are not available in most states or if they have high barriers to entry for most borrowers.
Customer support (7.5% of score)
We go over the different ways you can contact customer support. For example, we look at whether you can contact someone by phone, live chat, email, or regular mail. We also look at customer service hours and give high marks to companies that offer 24-hour service.
- A lender will receive 5 out of 5 if it offers multiple ways to contact it and is open seven days a week for a significant part of the day.
- A lender with customer support available six days a week and many ways to contact them will win 3 out of 5.
- Lenders will receive a 1 out of 5 if they have limited ways for you to contact them and are only available during certain hours of the traditional work week.
Ethics (7.5% of grade)
We review the company to see if there have been any scandals over the past three years. We investigate whether the business is known to be racist or sexist towards its customers or staff or has predatory lending practices. We also consider the company’s Better Business Bureau rating.
- A lender will receive 5 out of 5 whether it has been scandal-free in the past three years and whether it has an A+ rating from the Better Business Bureau.
- If a company has no scandals and a BBB rating of around B, it will get a 3 out of 5.
- Lenders will receive a 1 out of 5 whether they have been part of a major scandal in the past three years or have a BBB rating of D or lower.
Our ratings can help you determine which lender is best for you. Auto lenders who score high in each category will be our lenders with the highest overall ratings. Nevertheless, consider options with lower overall ratings if they are more suitable for your individual situation.