Loan Basics — Auto Loans

Auto Loans

Buying a car—new or used—could be one of the biggest purchases you will ever make. It’s important to know your options when it comes to getting a loan. Finding the right loan can save you a significant amount over the long run.

Your budget

The first step toward buying a car is finding out how much you can afford to spend. To estimate your car loan amount and monthly auto payment, use the 20 percent rule. Your monthly auto payment shouldn’t exceed 20 percent of your net (after taxes) monthly income. Simply multiply your net monthly income by .20 to get your estimated monthly auto payment.

Researching cars and costs

Research is the key to finding out what you can afford. The Internet offers a variety of resources for car shoppers to research vehicles, sell and buy cars, and find a car loan.

  • To find history reports on pre-owned cars, visit CARFAX®.
  • To get detailed pricing information, including manufacturer and dealership pricing, search Kelley Blue Book.
  • If you’re looking to buy or sell your vehicle privately, AutoTrader® and are well known and widely used resources.

Financing your car

It’s important to know where you stand financially before determining if you can finance a car, who your lender should be and when you should start looking for an auto loan. Lenders will use your credit score to determine whether you qualify for a loan and the interest rate they can offer you.

With good credit, you are likely to get a lower interest rate, which will save you hundreds and even thousands of dollars over the life of the loan. Before you begin to shop for an auto loan, check your credit score.

Refinancing auto loans

When you refinance an auto loan, you are taking out a new loan at a new, lower interest rate. Refinancing doesn’t reduce the debt you owe—but, with a new, lower interest rate, it can lower your monthly payments and save you a significant amount of money over the life of the loan.

Knowing when and if to refinance a loan can be a challenge. For some people, refinancing makes great financial sense, and for others, it may never be worth it because the costs outweigh the benefits.

If you’re thinking about refinancing an auto loan:

  • Look out for prepayment penalties. Determine if your current auto loan has any penalties for paying off the loan early. This will impact how much you can save from refinancing.
  • Check your credit score. Your interest rate will depend on your credit score. Get a free copy of your credit report at and opt to see your credit score. Make sure your credit report is accurate and report any inaccuracies to one of the major credit bureaus.

My Money Goals

Want to buy a house? Reduce debt? Scroll through the columns below and select your goal to create a plan.

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    This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.