All You Need to Know About Auto Loans

Authored By: Community Financial Credit Union on 9/28/2021

If you’re in the market for a new car or truck, you’re likely also shopping for an auto loan. Your auto loan will affect your monthly budget for the full term of the loan, so it’s important to do your research and make an informed decision before finalizing it. Here’s all you need to know about auto loans and how to choose the one that’s best for you. 

How do auto loans work?

Auto loans make it possible for consumers to purchase a new car without having all the cash on hand when buying. With a car loan, you’ll receive the funds you need to purchase the vehicle in one lump sum, which you’ll pay a portion of back each month, with interest, over the term of the loan.

How can I apply for an auto loan?

Auto loans can be secured through a variety of means, including at the dealership, through a financing company, or at your local Community Financial Credit Union. Dealerships and financing companies can generally snag you quick loans at higher rates, while your Community Financial sales representatives can get your auto loan approved fast, and with a term and interest rate that works for you.

For auto loan financing with Community Financial, we offer a variety of easy ways to apply, including over the phone at (877) 937-2328, through your mobile app or eBanking account, at any of our convenient branch locations, or online at

How high will my monthly payment be?

Your monthly payment amount will be determined by several key factors: 

  • The loan amount. The amount you borrow will be equal to the value of the car you’re purchasing, or significantly less if you make a sizable down payment with saved funds or the profit of selling your old vehicle. 
  • The annual percentage rate. Usually referred to as the APR, this is the effective interest rate you pay on your loan. Your interest rate is determined by information such as credit score, term of the loan, model year of the vehicle being bought, and more.  
  • The loan term. The default length of most auto loans is five years, but you can stretch the term to seven years or even longer. A longer-term loan means paying less each month, but it also means paying more in overall interest throughout the life of the loan. A shorter-term loan also means you’ll own the car free and clear sooner. 

Once you have some basic information, Community Financial’s Car Loan Calculator can show you an approximate monthly payment and help get you prepared for your new auto loan. Community Financial also offers no application fees, flexible terms up to 84 months, 0% down options, and more!

How can I score the lowest interest rate on my auto loan?

The interest rate on your auto loan will directly affect your monthly payments throughout the loan term, so it’s important to make every effort to score the lowest rate possible. Here’s how:

  • Utilize Community Financial’s .25% rate discount. When you have your auto loan payment taken directly out of your Community Financial checking account each month, you can score a .25% rate discount, which can end up saving you even more on your auto loan.

·       Know the industry standard rate. Before you start shopping for an auto loan, know where the market is at. As of August 11, 2021, the average APR for an auto loan at a 5-year term is approximately 4.15%. Knowing this information will help you make an informed decision.

  • Boost your credit score before applying for a loan. In the months before you apply for an auto loan, take steps to boost your credit score, including paying all credit card bills on time, working to pay down outstanding balances, not opening new cards, and reviewing your credit report for fraud. 
  • Borrow less than you qualify for. While it’s tempting to max out your eligibility, consider borrowing less than you qualify for when taking out an auto loan. A smaller loan amount generally means a lower interest rate as well. 
  • Save up for a bigger down payment. If you don’t have a substantial down payment saved up, you may want to delay your auto loan application until you can save more, borrow less, and qualify for a lower interest payment.

Shopping for a new car is exciting, and you may be itching to get behind the wheel of a newer vehicle. However, since your auto loan will directly impact your monthly budget for up to seven years, it’s important to do your research carefully before finalizing your loan. Let our guide on auto loans help you make an informed decision about your loan. Explore more information about auto loans with our Auto Loan module through our Money Matter$ eLearning Center.

Ready to get started?  Reach out to our financial sales representatives at (877) 937-2328 today.

Your Turn: Have you recently taken out an auto loan? Share your best tips with us in the comments. 


*Annual Percentage Rate (APR). Auto loan payment example assuming: A $15,000 loan amount on a 2021 new model vehicle with 20% down, an excellent credit score, a 60 months term and a 1.99% APR. The monthly payments would be about $264. An additional .25% rate discount is applied when payments are automatically deducted from a Community Financial checking account. Rates vary and are dependent on individual credit history and other factors including LTV and term. May require co-signer.

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