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Key takeaways
- Military car loans offer several benefits, including easier and faster approval, as well as lower interest rates.
- Car purchases are more affordable since military car loans often require a smaller down payment or no money down.
- Like any car loan, defaulting on a military car loan can impact your credit.
When it comes to buying a car, U.S. military members have an advantage. Many lenders offer special military auto loan rates 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.
7 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 low credit scores. The approval process tends to be 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 standard rates.
- No prepayment penalty: Lenders are not allowed to charge a prepayment penalty on military car loans if you or your spouse are on active duty. However, retired or former military members may still face a prepayment penalty.
- 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 for a purchase, but it may have you paying more interest since you will carry a larger balance.
- Longer repayment term: Military car loans may offer a longer repayment timeline than traditional car loans. This can make your monthly installment payments cheaper as the total amount of the debt will be spread over a longer timeline. Similar to paying a lower down payment, however, you may end up paying more interest in the long run.
- 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, but USAA and Navy Federal are two credit unions that specialize in working with military members.
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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: Starts at 4.94% (with autopay)
- Loan types offered: New, used and older car auto loans, auto loan refinance
- Loan amounts: $5,000 and up
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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. Defaulting on your loan could hurt your credit score and make it more difficult to borrow money in the future.
Don’t fall into a false sense of security just because it’s easier to get military car loans. Remember to be cautious and to consider the pros and cons of financing a car before proceeding. 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 — may not be cheaper.
How to qualify for a military car loan
Though each lender has its own set of qualification criteria, 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.
- Your income information.
Bottom line
Military car loans have benefits, including lower interest rates and lower down payment requirements, 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.
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