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.
How to finance a car
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
Geico auto coverage is available in all 50 states and Washington, D.C., with 16 discounts and add-ons like roadside assistance, rental car reimbursement and mechanical breakdown insurance.
Progressive offers an array of riders, including rideshare insurance and a Deductible Savings Bank that deducts $50 each policy period you go without a claim. It also offers mechanical breakdown insurance, which covers unexpected major system failures.
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.
Offers in this section are from affiliate partners and selected based on a combination of engagement, product relevance, compensation, and consistent availability.
CarShield offers seven warranties, including bumper-to-bumper, powertrain, electrical systems, motorcycles and EVs. Contracts are administered by American Auto Shield.
Six tiers of coverage with no mileage restrictions. Benefits include coverage for tire and windshield (from road hazards), key fob replacement, roadside assistance and 30-day cancellation policy. Advantage plan covers maintenance, which is typically excluded.
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.
- Lends to borrowers with bad credit
- No early payoff fees
- Prequalification available
- The Auto Navigator tool lets you get prequalified in minutes for financing for a new or used car (should be used before you go to a dealer)
- 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.
- Loan amounts start at $500
- No early payoff fees
- Prequalification available
- Cash incentives through car-buying service
- Co-borrowers allowed
- High satisfaction rating on J.D. Power's 2024 consumer lending study, indicating that this lender has strong customer service
- 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.)
- Open to borrowers with bad credit
- No early payoff fees
- Prequalification available
- 100% online application process available
- Low minimum loan amount
- Allows co-borrowers
- Specializes in lending for used cars
- 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
APR
4.99% to 19.24%
Loan type
Refinancing
Loan amounts
$5,000 to $150,000
Terms
12 to 96 months
Minimum credit score
560
Fees
Not disclosed
Availability
iLending lends in all 50 U.S. states except Hawaii.
Terms apply.
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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