Military car loans: Drive away with a deal
Key takeaways
- Multiple laws, including the Military Lending Act and the Servicemembers Civil Relief Act, offer special protections to active-duty service members taking out auto loans.
- Some lenders offer special discounts and privileges to military service members.
- If you are a servicemember or veteran, check out specialized credit unions such as USAA and Navy Federal.
When it comes to buying a car, U.S. military members have an advantage. Many lenders offer special military auto loans that work just like regular auto loans but with better loan terms.
If you’re serving in the military or retired from service, there is a good chance you can qualify for a military car loan with a competitive rate.
6 benefits of military car loans
Military car loans are better than conventional car loans in several ways:
- Easier to get approved: Military car loans are generally available even to service members with credit scores lower than the cutoff for regular car loans. The approval process is usually faster as well.
- Lower interest rates: Lenders usually offer reduced interest rates on military car loans, such as a discount of 0.25 percent to 0.50 percent off their standard rates. A lower rate could save you a great deal of money in interest payments over the length of the loan.
- No prepayment penalty: Lenders are not allowed to charge a prepayment penalty on their loans if you or your spouse are on active duty. However, retired or former military members may still face a prepayment penalty if the lender charges it.
- Lower down payment: You can often pay less upfront for military auto loans, and some programs offer no-money-down loans. That makes it easier to save up enough for a purchase, though a smaller down payment may mean paying more in interest since you will carry a larger balance.
- Legal protections: The Servicemembers Civil Relief Act (SCRA) provides active-duty service members protections for installment contracts, like auto loans. These protections include prohibiting creditors from repossessing a vehicle for breach of contract without a court order. The SCRA also limits the interest rates charged on auto loans that were opened prior to joining the service.
- Overseas shipping: Lenders may be more willing to agree to overseas shipping if you are going through a Permanent Change of Station (PCS). And some lenders that specialize in working with military members and their families, like USAA, have streamlined processes to help make overseas shipping easier.
Best military auto loans
Several lenders offer discounts for active duty military members or those retired from service. However, USAA and Navy Federal are two credit unions that specialize in working with military members.
USAA auto loans
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Unlike many lenders, USAA only offers its auto loans to select groups: servicemembers, veterans, spouses and qualifying relatives. It gives borrowers up to 45 days to shop after receiving a loan offer, which can help you negotiate a good price at the dealership. However, there is no prequalification process, so you will see a hard pull of your credit when you apply.
- APR: 4.89 (with autopay)
- Loan types offered: New and used auto loans, auto loan refinance
- Loan amounts: $5,000 and up
Navy Federal auto loans
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Navy Federal also works with military members, veterans and certain qualifying relatives. It has one of the lowest starting rates on the market for recent model years. Additionally, it is one of the few lenders that offers terms up to 96 months — which can help keep your monthly payments manageable.
- APR: Starts at 4.09%
- Loan types offered: New and used auto loans, auto loan refinance
- Loan amounts: $250 and up
Drawbacks of military auto loans
The same risks that apply to all auto loans apply to military auto loans — most importantly, the risk that you might not be able to make your payments. Defaulting on your loan could hurt your credit score and make it more difficult to borrow money in the future.
The ease with which military members can get a car loan makes it even more important to be cautious. Your loan may be less costly because of your military status, but the other costs of owning a car — maintenance, insurance, parking fees and fuel — likely won’t be cheaper.
How to qualify for a military car loan
Each lender has its own set of qualification criteria. However, you’ll generally need the following to be eligible for a military car loan:
- Proof of your military status, such as your active-duty military ID or discharge papers if you are a retired service member.
- Your contact information, including a local address for the location where you are currently stationed.
- Contact information for family members who can handle matters related to your loan if you are deployed overseas.
The bottom line
Military car loans have benefits, including lower interest rates, lower down payment requirements and federal protections. But even with the extra protections offered by the Military Lending Act (MLA), the same risks of borrowing apply.
For this reason, you should still shop around when you’re ready to apply for an auto loan to ensure you get the best rates for your needs.
Consider checking military credit unions like Navy Federal and USAA because they offer auto loans with competitive terms to current and retired service members.
