PenFed auto loan review: Low rates, but membership required

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In a Nutshell

PenFed offers auto loans at some competitive interest rates for new, used and refinanced vehicles. But in order to be approved for the best deals, you’ll have to become a member and meet certain additional requirements.
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Pros Cons
Loan options include new- and used-car loans, auto-loan refinancing Membership and opening deposit required
APRs starting as low as 1.14% for new cars purchased through PenFed’s car-buying service Excellent credit required for lowest rates
Loan amounts from $500 to $100,000 Late payments subject to a 20% charge
Debt protection in case of hardship  

What you need to know about Pentagon Federal auto loans

Pentagon Federal is a military credit union that accepts certain civilians as members. Like many credit unions, it offers special discounts and rebates to members. Catering to military personnel, PenFed offers hardship debt protection to people who qualify and deployment guides for service members who are serving across the country and overseas.

But before you apply for a PenFed auto loan, make sure to understand your loan terms because late fees can be costly. Here’s some key info about PenFed auto loans.

Membership required but civilians welcome

PenFed is a military-based credit union, but certain civilians can join too. If you’re a member of any of the following associations, you may be eligible to join PenFed.

  • American Red Cross
  • American Society of Military Comptrollers
  • Coast Guard Auxiliary Association
  • Military Officer’s Association of America
  • National War College Alumni Association
  • Navy League of the United States
  • Marine Corps League
  • United States Department of Energy
  • United States Army Warrant Officers Association

You can also become a member by donating to an eligible charity.

Attractive rates for people who qualify

For new-car loans, used-car loans and auto-loan refinancing, PenFed advertises some competitive rates. Compare its 2.14% APR offer on new-car loans to the lowest rates advertised by other major lenders — including Bank of America, LightStream, Navy Federal and USAA — and you’ll find that PenFed offers lower starting APRs for eligible borrowers.

Keep in mind, though — if you’re approved, your interest rate may differ from advertised rates based on your credit and other factors, including your desired loan terms. If you don’t have excellent credit, you can expect to pay higher interest.

If you buy a car through the PenFed Car Buying Service, you may qualify for additional discounts and APRs as low as 1.39% on a new-car loan or 2.24% on a used-car loan depending on the loan term.

On top of that, when you buy through a dealer that’s certified by PenFed you can get additional discounts and reimbursements. While the credit union partners with a range of dealerships, it offers special incentives on select models through participating dealerships selling Alfa Romeo, Jeep, Mercedes-Benz and more.

Preapproval options, conditions apply

Getting preapproved for an auto loan gives you the chance to review and negotiate your estimated loan terms before accepting a lender’s offer. But not everyone who applies for an auto loan at PenFed will have that option.

You have to be a PenFed member for more than 90 days in order to apply for preapproval — and keep in mind that even if you qualify for preapproval, it’s not a guarantee you’ll be approved for the loan. And if you’re formally approved for a loan, you might be offered different terms than you were preapproved for.

A closer look at PenFed auto loans

Don’t let low rates distract you from reading the fine print. Here are some important details.

  • You can borrow up to 110% of the purchase price on certain new and used cars.
  • Late loan payments are subject to a charge of 20% of the overdue amount, but with a $25 max.
  • PenFed also offers Payment Saver auto loans at slightly higher rates for short payment terms, but these loans come with a final balloon payment.
  • PenFed is insured by the National Credit Union Administration, or NCUA, which provides protections similar to those offered by the FDIC to banks.
  • Membership isn’t restricted by state, but PenFed has fewer than 50 physical bank branches.

Who a PenFed auto loan is good for

If you’re looking for competitive interest rates, and you’ve got the credit needed to qualify for them, a PenFed auto loan could be an option. This is especially true for anyone looking for 36-month financing, since PenFed offers the lowest rates for loans with three-year repayment terms.

But keep in mind that the shorter the repayment term, the higher the monthly payments. A $25,000 loan repaid over 36 months, even with a 2.49% APR, would result in a monthly payment of $721.42. But you’ll pay less in interest than if you had a longer loan term.

Not sure a payment like that would fit into your budget? You can estimate your monthly payment using PenFed’s Auto Calculator and review your budget to see if you can keep up with the monthly payment required.

Applying for a loan, even if you have a preapproval offer, is a risk. Even if you use a loan calculator, you won’t know exactly what your payments and other loan terms are until you’re approved. If you’re a member and you have access to preapproval, you can make an informed decision about whether or not you should apply for a PenFed auto loan — but preapproval terms may change if you submit a formal application and are approved.

How to apply for a loan from PenFed

Applications can be submitted online, in the mail or through fax, and are accessible to both current and prospective members (with certain requirements).

Here’s an overview of the process.

1. Choose the loan category that fits your needs on PenFed’s Auto Loans page and click the “Apply Now” button.

2. Log in if you’re an existing member or fill out your application to create an account.

3. Enter the required details, including your desired loan amount, contact information and income information. You may also be required to submit photos of your ID.

Not sure if PenFed is right for you? Consider these alternatives.

PenFed members have access to the credit union’s competitive rates and the option to qualify for preapproval. If you’re not a member and don’t plan to become one, consider these alternatives instead.

  • LightStream auto loan: Lightstream offers multiple loan options with a possibility to get competitive rates thanks to its “Rate Beat” option.
  • Alliant Credit Union auto loan: This credit union gives you the chance to apply for preapproval, so if you’re preapproved you can shop around before you finalize your financing.

About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Mo… Read more.