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PenFed Auto Loan Review

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When the time comes to buy a new or used car, getting an auto loan is an essential part of the process for most car buyers. Credit unions like PenFed often offer lower interest rates on auto loans than banks, but you must be a member in order to qualify. PenFed membership is easy and rates are competitive, especially if you’re buying a late model car. However, if you’re looking to buy a motorcycle or RV, you’ll need to look elsewhere — PenFed recently discontinued these types of loans. Keep reading to determine if a PenFed auto loan is a good choice for you.

How PenFed auto loans work

Pentagon Federal Credit Union, better known as PenFed, is the second-largest credit union in the U.S., as measured by assets. Since PenFed has its roots in the U.S. military, its 46 branches worldwide (Guam, Puerto Rico, Okinawa, Japan, etc.) are often located in areas with a military facility and, in some cases, are restricted to those with access. This is something to keep in mind if you prefer to apply for an auto loan in person, otherwise you may apply online. PenFed serves members in all 50 states and Washington, D.C.

It’s possible to apply for an auto loan without being a member, but you won’t receive funds until your membership is approved. While many of PenFed’s members are associated with one of its 10 Affinity Partners, organizations which most have connections to the U.S. military, it is open to anyone with a Social Security number or Tax Identification Number. We’ll discuss membership requirements in more detail in a minute.

PenFed auto loan rates and terms: At a glance

  • APRs ranging between 2.99% and 17.99%
  • Loan amounts from $500
  • Terms starting at 36 months
  • FICO Score of 610 or higher preferred

PenFed offers auto loans on new and used cars, as well as the option to refinance a car loan from another lender. Rates and loan amounts are low, but if you’re looking for a shorter term, you’re out of luck — all PenFed auto loans begin at 36 months. That may best suit new car buyers who are eligible for the starting APR above or even lower rates by using PenFed’s car-buying service. Another option is a PenFed Payment Saver loan, but a balloon payment is required at the end of the loan’s term in exchange for lower monthly payments. We’ll break down each option, below.

While PenFed previously wrote loans on other vehicle types, such as RVs and motorcycles, it discontinued this option on Nov. 16, 2019 and now only issues loans for new and used autos, including trucks, SUVs, electric cars, sedans and hybrids.

New car loans

  • Terms from 36 – 84 months
  • Starting APRs between 2.99% and 4.49%
  • Loan amounts from $500 to $100,000

PenFed considers new cars to be the current model year (2020 and 2019) or the prior model year (2018). The car must be untitled and the borrower must be the original owner. Minimum loan amounts increase as the loan term increases. For example, 60 month loans have a $10,000 minimum, while you must borrow at least $25,000 for an 84 month loan.

Qualified borrowers can finance up to 110% of the MSRP, including tags, title, taxes and extended warranties. Keep in mind, however, a loan for more than the car is worth carries the risk that you’ll become upside down should you have a major collision or a total loss.

Used car loans

  • Terms from 36 – 84 months
  • Starting APRs between 2.39% and 4.49%
  • Loans amounts from $500 to $100,000

PenFed’s used car loans are available for all model years up to 60 months while 84 month loans are available for autos from model years 2014 through 2020. As with new car loans, qualified borrowers can finance up to 110% of the value. This is calculated based on the NADA average retail value plus the cost of tags, title, taxes and extended warranties.

Payment Saver loans

  • Terms from 24 – 60 months
  • Starting APRs:
    • 2.99% – 3.99% for new cars
    • 3.74% – 4.54% for used cars
  • Loan amounts from $10,000 to $100,000

There’s another way to borrow money from PenFed for a new or used car: PedFed’s Payment Saver loans offer a lower monthly payment than conventional auto loans, with a balloon payment at the loan’s end. Payments are calculated based on the loan term, the amount of the loan and the residual value or expected value of the car at the end of the loan. The difference between the two amounts is amortized over the loan term, which lowers the payment and eliminates the danger of being upside down in the loan. Trucks, vans, crossover vehicles, smart cars and SUVs are not eligible for this type of loan.

Refinance loans

PenFed has the same terms starting APRs for these types of loans as it does for its traditional new and used car loans.

Refinancing a new car. For those looking to refinance a 2020, 2019 or 2018 vehicle, PenFed offers loans up to 100% of the car’s NADA value. As we mentioned earlier, PenFed does not refinance its own loans.

Refinancing a used car. Likewise, refinance loans are available for model year 2017 and older cars for up to 100% of the car’s value.

Buying a car through PenFed

When borrowers use the PenFed Car Buying Service, they can get discounts on their loan rates. Discounts bring the APR to as low as 1.79% for 36 months and 17.99% for 84 months on new cars, while for used cars, rates are as low as 2.99% for 36 months and 17.99% for a 84-month term. PenFed says the service, which is in partnership with TrueCar, gives buyers an average of $3,350 savings off MSRP and offers special cashback offers from select car brands.

PenFed membership requirements

Obtaining an auto loan through PenFed requires borrowers to first become members of the credit union. Since PenFed is an open charter, it is available to most. The only requirement to become a member is to have a valid Social Security number or a Tax Identification Number (TIN). All members must have a “share” in the credit union, which means opening a share savings account and maintaining a balance of at least $5.

How to apply for an auto loan at PenFed

One of the best ways to apply for an auto loan, not just one from PenFed, is to get preapproved. That way, you can walk into the dealership with an idea of the rate and amount for which you qualify. If the dealer can beat it, that’s great — you’re probably getting a good deal.

PenFed offers preapprovals for loans as long as you have been a PenFed member for more than 90 days. If not, you’ll need to know the exact car you want to buy before applying for a loan. In either case, here are the steps you must follow:

  1. Join PenFed by completing the online application or log in if you’re already a member. As we mentioned earlier, it’s also possible to apply for an auto loan without being a member.
  2. Have either a total dollar amount or a specific vehicle in mind with the estimated total amount. Remember that there is a 90-day waiting period to be preapproved for an auto loan without having selected a specific vehicle. If you have a specific car in mind, know the make, model, year, VIN and mileage if used.
  3. Gather the pertinent personal information about yourself, including your home and work addresses and phone numbers, current income and Social Security number. If you have a co-applicant, you’ll need to have his or her information also.
  4. Log into the PenFed website and complete the online loan application by clicking the “Apply Now” button next to the type of auto loan you want.

Additional PenFed auto products

PenFed offer several services in conjunction with its auto loans, including:

  • GAP protection covers the difference between the amount owed on the loan and the value of the car itself in the event of a major collision or a total loss not covered by your traditional car insurance. The cost is $449 and includes up to a $500 reimbursement for your insurance deductible. You could read more about GAP insurance here.
  • An extended warranty from PenFed covers covers towing, rental reimbursement and roadside assistance and certain types of repairs after the manufacturer’s warranty ends. Multiple options are available ranging from $995 to $2,995. Read up on how to find the best extended warranty.
  • Debt protection is available to cover unexpected events including death, disability and involuntary unemployment. PenFed offers several options ranging from $0.88 to $2.10 per $1,000 of your monthly loan balance.

These services are all optional and are not necessary for many borrowers. They can be purchased elsewhere, so you may want to shop around before adding any of these products to your PenFed car loan.

Remember that it’s best to shop around with multiple lenders for any type of loan, including one for a new car. If you submit your applications within the same 14- to 45-day window, applying to multiple lenders should only be considered as one inquiry on your credit report. By completing an online form on LendingTree, you could potentially receive up to five car loan offers from lenders in our partner network, depending on your creditworthiness.

Pros and cons of financing through PenFed

Similar to many credit unions, PenFed’s starting auto loan APRs are competitive, but it’s important to keep in mind that less-qualified borrowers may wind up with higher rates, as high as 17.99%, according to a company spokesperson. It’s also important to remember that all credit unions require membership. It’s always a good idea to explore your options for lenders before deciding to jump through that extra hoop of membership. A nice perk from PenFed is the ability to apply for an auto loan before signing up for a membership. Here are some other benefits and drawbacks:

Pros of PenFed auto loans

  • Competitive rates for new and used auto loans.
  • Auto refinance loans at the same rates for new and used car loans.
  • A Payment Saver loan could be helpful for borrowers looking for lower monthly payments but a balloon payment carries risk if you haven’t set aside enough money when the bill is due.
  • Membership brings additional deals including: partnerships with auto insurance carriers offering special rates; discounted oil changes and other auto services; home security through SimpliSafe and medical services such as discounts to Dental Benefits Max and On Call Doctor.

Cons of PenFed auto loans

  • Membership required.
  • In order to get the extra discounts on interest rates, you must use PenFed’s car-buying service.
  • To get preapproved for an auto loan without a specific vehicle in mind, you need to be a PenFed member for longer than 90 days.

Who is a PenFed auto loan best for?

Since membership is required to get an auto loan from PenFed, this lender is a strong option if you are already a member or meet the requirements for membership and are willing to take that extra step, preferably well in advance of when you plan to buy a car. PenFed is a better option if you are interested in its car-buying service, which is offered in partnership with TrueCar, and offers a starting APR of 1.79%, one of the best rates according to other listings on our site.


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