Traditionally you would get a car loan from the bank you normally use. Now though you have many more options. In addition to going to your physical bank for a car loan, you can also get a loan right at the dealership. After they pull your credit you can be approved for a loan in minutes. Another popular option is to go online and use auto loan comparison sites to get auto loan quotes to find the best rates.
But there is another method you may not have heard of. You can also get a car loan at peer to peer lending sites like Lending Club and Prosper. With these micro lending sites, there is no central bank. Users (investors) loan money to other users.
One of the benefits of getting an auto loan from a p2p site is that if you don’t make your payments the car will not be taken from you. The worst that can happen is your credit score will be hurt. Now this doesn’t mean you should get a loan there just for this reason. By ruining your credit, you won’t be able to get another car loan or a house in the future. A bad credit score will also affect the interest rates on your credit cards and even your employment opportunities.
The downside of obtaining a loan from p2p lending is that the interest rate is likely to be higher than through traditional methods. The reason being that there is no collateral, namely, the car. That means the loan is riskier. Riskier loans have higher interest rates. The end result is a loan that is hundreds of dollars more expensive than a traditional auto loan.
Ultimately you should get a car loan from whomever can offer you the lowest interest rate. It is highly unlikely that you won’t qualify for an auto loan from a bank yet will qualify for a loan from Lending Club or Prosper. Thus, getting a p2p loan for a car is only a good idea if you are refinancing your way out of a bad car loan.