4 Alternatives to Discover Auto Loans
EG
Summary:
Discover doesn’t offer auto loans, but there are plenty of alternatives to consider, including other auto lenders, a Discover personal loan, or borrowing against your home equity.
When you’re shopping around for a new car loan, you’ll have plenty of attractive options to choose from. And while Discover has become a favorite online bank and lender for many things, the company, unfortunately, does not offer auto loans.
The good news is there are plenty of options available to help you finance a vehicle, including through Discover. Keep reading to learn more about your loan options when buying a car.
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Does Discover offer auto loans?
Discover has become a popular online lender for student loans, personal loans, home loans, and credit cards. Unfortunately, the company doesn’t currently offer car loans. The good news is you don’t necessarily need an auto loan to buy a car. And if you decide an auto loan is right for you, there are plenty of other lenders offering great financing deals.
Were you hoping to get an auto loan from Discover to finance your next car? It’s easy to see why since the lender has become so well-known for its online loans. But because Discover doesn’t offer car loans, you’ll have to explore one of the Discover auto loan alternatives available.
1. Other auto lenders
If you’re in the market for a car and a car loan, you’ll have plenty of options available to you. While Discover doesn’t currently offer auto loans, plenty of financial institutions of all kinds do. As a result, you won’t have a problem finding one that meets your needs.
When comparing the best auto lenders, there are a few factors to consider.
Find the right terms
First, your interest rate determines how much your loan will cost you. The lower the interest rate, the better. And generally speaking, borrowers with good credit scores have access to the best interest rates. Because rates can vary from one lender to the next, it’s important to shop around for the best deal.
Another thing to consider is the loan term available. Auto loan terms usually start around two years and go up to five or seven years. Choosing a shorter auto loan term can be appealing since it will result in a lower monthly payment. However, you’ll also usually be stuck with a higher interest rate and will have more time to accrue interest during the life of your loan.
Find the right lender
When shopping for an auto loan, you’ll have a couple of different types of lenders to choose from.
First, banks and credit unions both offer auto loans. You can find a loan through your normal lender. However, there are also plenty of online lenders, some of which specialize in offering auto loans. The benefit of working with a bank or credit union — especially one you already have a relationship with — is that you can often get the best interest rates.
The other option for financing is through the dealership where you buy your car. Dealer financing can come with special perks, including any deals or specials the dealership happens to be offering. For example, some companies offer 0% APR financing deals, especially to borrowers with excellent credit.
2. Personal loans
Auto loans are usually the most attractive option when buying a car because they’re designed for that purpose. Auto loans are secured loans, meaning the car you buy serves as collateral. In other words, if you don’t make your monthly payments, the lender can repossess your car.
While having the loan secured by your car sounds like a negative thing, it reduces the risk for your lender, meaning they’re likely to offer a considerably lower interest rate. However, if you decide an auto loan isn’t right for you, you can also opt for a personal loan, which is unsecured (in other words, not backed by an asset). Though you also have the option for a secured personal loan, this requires some collateral that you may not have access to yet.
If you think a personal loan is the best financing option for you, take a look at some of the lenders below. Through this tool, you can compare loan terms from multiple lenders at the same time to find your ideal plan.
Discover personal loans
While Discover doesn’t offer auto loans, it does have some of the most popular online personal loans. Discover personal loans come in amounts ranging from $2,500 to $35,000, meaning most people will be able to borrow enough to buy the car they want. Loan terms range from three to seven years.
Discover offers fixed-rate loans, meaning your rate won’t change over the life of your loan. If interest rates increase, you’ll continue to pay the same amount. Discover’s loan rates span a wide range, and the best interest rates are usually reserved for borrowers with the best credit scores.
Discover doesn’t charge any fees on its personal loans. It also offers same-day decisions, meaning you could have the money for your new car in your bank account almost immediately at no added cost to you.
3. Home equity financing
Another source that’s available for financing your vehicle purchase — and one that many people don’t think of — is your home equity. Your home equity is the amount of ownership you have in your home. For example, if you have a home worth $300,000 and a mortgage for $200,000, you have $100,000 of equity in your home.
There are several different ways of using your home equity to buy a car:
- Home equity loan. A home equity loan is a term loan that allows you to borrow against the equity you have built in your home. Like an auto loan, a home equity loan has a fixed principal amount, loan term, and interest rate.
- Home equity line of credit (HELOC). A HELOC combines the features of a home equity loan and a credit card. You can borrow against the equity in your home. But unlike a home equity loan, you can borrow from the same line of credit again and again, as long as you repay the balance.
- Cash-out refinance. This type of loan requires you to take out an entirely new loan to replace your current mortgage. Instead of borrowing the same amount as your current mortgage, you borrow more and take the difference in cash. The cash can be used for any purpose, including buying a car.
Tapping your home equity to buy a car has some pros and cons. First, like an auto loan, home equity financing is secured. But unlike your auto loan, it’s secured by your home instead of your car. As a result, if you fail to make your loan payments, you risk losing your entire home.
On the other hand, home equity financing usually offers the lowest interest rates on the market. You can often borrow against your home for a lower rate than you can get an auto loan or personal loan.
Pro Tip
Be cautious of doing a cash-out refinance if market interest rates are higher than your current rate. Not only would the money you borrow for your car be more expensive, but you would be stuck with a higher rate for your entire mortgage term.
4. Paying cash
Paying cash for a car isn’t always possible, which is why so many people turn to auto loans. However, there are several benefits to paying in cash if you can afford to do so.
First, the obvious benefit of paying cash for your vehicle is you can save money on interest. Let’s say you take out a $20,000 auto loan with a 6% interest rate and a five-year term. Over the life of the loan, you’ll pay more than $3,000 in interest. But if you can pay in cash up front, you can avoid paying any interest at all.
Another benefit of paying for a car in cash is you can avoid becoming upside down on your loan. Car loans are depreciating assets. In fact, a brand new car can lose up to 20% of its value in the first year.
Because of how quickly cars depreciate, it can be easy to become upside down on your loan, which means you owe more than the vehicle is worth. By paying cash, you avoid that possibility.
FAQs
Can I use a Discover personal loan to buy a car?
A personal loan can be used for nearly anything, including buying a new car. However, the interest rate may be higher than what you could get with an auto loan.
What credit score do you need for a Discover loan?
To qualify for a Discover personal loan, you’ll need a credit score of at least 660. That being said, you may need a higher credit score depending on your financial situation.
Does refinancing a car hurt your credit?
Refinancing a car can temporarily hurt your credit since it requires a hard inquiry and a new account on your credit report. With that in mind, if auto loan refinancing will allow you to make a car payment that your current auto loan doesn’t, it may be worth the hit to your credit score.
Is refinancing a car free?
Refinancing a car usually isn’t free. Most lenders charge at least some fees for a refinance loan, including an origination fee. However, some lenders offer auto loans without fees.
Is it better to get an auto loan from your bank or the dealership?
Generally speaking, your bank or credit union will offer more attractive financing offers than a car dealership. However, some dealers may offer low interest rates for a borrower with an excellent credit history.
Key Takeaways
- While Discover offers several popular types of online loans, it doesn’t currently offer auto loans. The good news is there are plenty of alternatives.
- When shopping for an auto loan, it’s important to consider the interest rate, loan term, and other characteristics of the loan.
- While Discover doesn’t offer auto loans, it does offer personal loans that can be used for any purpose, including buying a home.
- Another financing option is using your home equity to buy a car through a home equity loan, home equity line of credit, or cash-out refinance.
- There are plenty of options available for financing your auto loan, but you can also pay cash to avoid paying interest and eliminate the risk of being upside down on your loan.
EG
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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