When purchasing a car, you generally have two main financing options: securing a loan through a bank (or credit union) or opting for dealership financing. While dealership financing has its advantages, securing a loan from a bank or credit union allows you to sidestep the dealership as a middleman. One option that is growing in popularity is getting an online auto loan. So, should you get an online auto loan? Let’s weigh the pros and cons.

What Is an Online Auto Loan?

An online auto loan is a loan that you apply for over the internet using a computer or mobile device. It offers the convenience of comparing several lenders at once, often providing faster approval times and potentially lower rates. Completing the entire loan process online, from application to funding, means you never need to visit a physical bank branch.

Online marketplaces allow you to compare offers side by side, often helping you find the best deal. But should you get an online auto loan instead of one from a traditional bank or dealership? Let’s dive into the pros and cons.

Pros of Online Auto Loans

Competitive Interest Rates

Online lenders usually have lower overhead than traditional banks, allowing them to offer more competitive interest rates. Because the online lending market is so competitive, lenders are often willing to offer lower rates to earn your business.

Quick and Convenient

With online auto loans, you can apply from anywhere and get prequalified within minutes. The process is fast and user-friendly, and it allows you to compare offers to ensure you’re getting the best rate.

More Lenders Available

Online auto loans offer you access to a larger pool of lenders, not just your local bank or credit union. This broader selection increases your chances of finding better terms, larger loan amounts, or lower fees. Online marketplaces streamline the process by allowing you to submit one application and receive multiple offers.

Leverage Prequalification

Prequalification through online lenders can give you an advantage when negotiating with a dealership. If you have a solid offer from an online lender, the dealership may be more inclined to match or beat it.

Cons of Online Auto Loans

Lesser-Known Lenders

Online lending often means dealing with smaller, lesser-known lenders. Before submitting personal information, make sure to verify the lender’s legitimacy. Look for customer reviews and check with consumer protection agencies like the Better Business Bureau (BBB) to ensure they are reputable.

Few or No Physical Locations

Since online lenders operate primarily through digital platforms, they often don’t have physical locations. This lack of in-person support could be a drawback if you prefer meeting with a loan officer or need immediate assistance.

Limited Ability to Negotiate

Traditional banks and credit unions may offer you more room for negotiation. Online lenders tend to have fixed terms, and their digital processes mean there is less flexibility for making adjustments to interest rates or fees.

Missing Special Promotions

Online auto loans typically don’t offer the same exclusive promotions you can find with dealership financing. Car manufacturers and dealers often have special deals, including low APR financing, cash rebates, or clearance offers, which you may miss out on if you go with an online lender.

How to Apply for an Online Auto Loan

Before deciding should you get an online auto loan, prequalify with several lenders to compare rates and terms. Follow these steps to secure the best loan for your new or used vehicle:

1. Select a Lender: After reviewing various offers, choose the lender with the best rates, terms, and fees.
2. Fill Out an Application: Provide your personal, employment, and financial details. You may need to submit proof of income or residency.
3. Review Loan Terms: Once approved, double-check that the interest rate, repayment term, and fees match the original offer.
4. Sign and Receive Funds: Once you agree to the terms, sign electronically. The lender will either send the funds directly to the dealer or provide you with a check to take to the dealership.

Tips for Shopping for an Online Auto Loan

When deciding should you get an online auto loan, these tips can help:

• Shop and Compare: Review offers from online lenders, credit unions, and banks to ensure you get the best deal.
• Pay Attention to Fees: Be aware of any hidden fees that may drive up the overall cost of the loan.
• Stick to Your Budget: Keep ongoing costs like maintenance, fuel, and insurance in mind.
• Get Preapproved: Bring a preapproved loan offer to the dealership to increase your negotiating power.
• Check Funding Processes: Make sure you understand how and when funds will be sent to the dealer.

Shore Up Your Credit Before Applying

A strong credit profile is key to getting the best rates and terms. Before applying for a loan, check your credit score and resolve any issues. Even a small improvement in your credit score can significantly reduce your interest rate, saving you money over the life of the loan.

Conclusion

So, should you get an online auto loan? Online auto loans offer convenience, competitive rates, and access to a broader range of lenders. However, they come with certain drawbacks, including limited negotiation ability and missing out on dealer promotions. Ultimately, it’s a personal decision based on your preferences, credit profile, and financial needs.

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