If you’re in the market for a new or used car, you’re probably looking into financing. One method of financing a new or used car is to take out an auto loan. Before you start shopping, it’s important to understand how auto loans work.
So what is an auto loan?
Put simply; an auto loan is a loan provided to a consumer who then uses it to purchase a car. Auto loans are paid back over time (with interest). Because many people can’t afford to buy a car outright, auto loans provide the money needed to purchase a car.
What is needed for an auto loan?
Before issuing an auto loan, lenders will ask for necessary personal and contact information, employment and income details, and information about the car. Lenders will also check your credit history.
Do auto loans require collateral?
Auto loans are secured against the car you purchase. If you’re unable to continue making loan payments, the lender can recoup the car.
How long are the terms of auto loans?
Terms of auto loans vary but most last 36-72 months.
Where can I get an auto loan?
Auto loans can be acquired from indirect lenders such as dealerships or direct lenders such as banks, credit unions, or online lenders.
How are auto loan interest rates determined?
The auto loan interest rates offered to you are based on your credit history, the loan amount you plan to finance, and the loan to value (LTV) of the car you purchase.
Can I get an auto loan with bad credit?
Yes, but interest rates will likely be higher than those offered to consumers with good credit.
Can I get an auto loan with limited credit history?
Yes, but interest rates may be higher, or you may be asked to add a co-signer.
How much will my monthly payment be?
Monthly payments will vary. To decrease your monthly payments look for lower loan amounts, lower APR, or a longer loan term.
How can I get the best deal on an auto loan?
Research and shop around. While the best deals are offered to those with the best credit, there are lenders who want your business and will be willing to work with you.