Car loans are surprisingly cheap with interest rates near 10-year lows

Percent sign on windshield

Most buyers -- particularly those who can bring a few bucks and at least average credit to the showroom -- can finance a new ride on surprisingly good terms.

Our most recent survey of major auto lenders found that car loans for borrowers with credit scores of 700 or better cost an average of about 7%, even for five-year loans.

Except for a few weeks this spring, that's as low as they've been in the past 10 years.

Most lenders are still requiring at least a modest down payment -- cash, a trade-in or a combination of the two -- from almost everyone.

Lenders are not handing out auto loans as freely as they did before the financial crisis, especially to buyers with poor credit.

But most dealers agree the worst of the credit crunch is over, even for buyers with less than stellar credit scores. Leasing may even be making a comeback.
Here's what to expect from the three major sources of auto loans:

Auto financing companies affiliated with the car companies: You've got to use these lenders to take advantage of the discount loans you see in the television and newspaper ads.

And make no mistake about it, this is the cheapest way to finance a new car or truck, if you can qualify.

GMAC, for example, is offering 0% loans as long as 60 months, and even 72 months, on some Chrysler and General Motors models.

The discount deals aren't quite as good on most import brands -- 3% or 4% are more the norm. But that's still a good first choice.

The auto-financing companies also are more likely to back buyers with below-average credit, though at considerably higher rates.

GMAC began lending to borrowers with subprime credit (FICO scores below 620) again this spring, and Toyota sales executives say they're pushing their finance company to make more credit available to buyers with lower credit scores.

Credit unions: If you're a member, you'll find better auto loan rates than at most banks and a greater willingness to extend credit to borrowers with lower credit scores.

Credit unions also require smaller down payments. You might even find 100% financing -- something that's hard to find anywhere else.

Many continue to offer a $1,000 rebate for financing GM or Chrysler vehicles through them. This is in addition to any manufacturer or dealer rebates on the vehicle you want.

Commercial banks: They often have higher rates and tougher qualification standards than captive lenders or credit unions.

But the banks with the best deals are well worth considering.

Think Mutual Bank, for example, is offering 24-month loans for 3.99%, 36-month loans for 4.09% and 60-month loans for 4.29%.

Bank of America will provide loans up to 60 months for about 4.24% in most places.

Our extensive database of auto loan rates is a good place to check and compare rates from dozens of local and national banks.

It's been impossible or prohibitively expensive to lease most cars and trucks over the past year.

The domestic carmakers virtually stopped doing lease deals last summer, and the import brands often limited that financing option to a handful of models and customers with the very best credit.

When GMAC dropped out of the auto leasing business last summer, the percentage of new GM cars and trucks being leased plunged from 17% to about 1%.

But that may be about to change.

GM has just launched a pilot leasing program with US Bank that's limited to five states, but it could go nationwide and lead to more, and more-affordable, leases this fall.

Can't decide? Let our Buy or Lease? calculator help you out.