How auto loans work
Auto loans are secured by the vehicle. If you default, the lender can repossess the car. Loan amount depends on price, taxes, fees, down payment, and credit.
Terms commonly run three to seven years. Longer terms cut monthly payment but increase total interest and upside-down risk.
Dealer vs direct lending
Dealers arrange financing with partner lenders and may mark up rates for profit. Preapproval from a bank or credit union gives a baseline to compare dealer offers.
Focus on total price of the car and APR, not only monthly payment. Add-ons like extended warranties can be financed and inflate the loan.
Down payment and trade-in
Cash down or trade equity reduces amount financed and interest paid. Rolling negative equity from an old loan into a new one increases risk if you need to sell early.
Know your trade value from independent guides before you negotiate. Separate car price, trade value, and financing in the conversation.
Insurance and protection products
Lenders require comprehensive and collision coverage on financed cars. GAP insurance covers the difference if the car is totaled and insurance payout is below loan balance.
Shop GAP outside the dealer if allowed. Decline products you do not understand or cannot afford alongside the payment.
FAQs
What credit score do I need for a car loan?
Many lenders approve a range of scores at different rates. Strong scores get lower APR. Subprime loans exist but cost more; improve credit first if you can wait.
Is leasing better than a loan?
Leasing lowers monthly cost for the same car but you do not build equity. Buying suits long ownership; leasing suits frequent upgraders who stay within mileage caps.
Can I refinance an auto loan?
Yes, if rates fell or your credit improved. Ensure the car value supports the new balance and check for refinance fees.
General information only. Not financial, tax, insurance or credit advice.