A beginner’s guide to auto loans
Before exploring the right auto loan for your needs, it’s important to understand the ins and outs of the financing option and where to secure them.
What are car loans and how do they work?
Auto loans let you borrow the money you need to purchase a car. Since car loans are typically “secured,” they require you to use the automobile you are buying as collateral for the loan. You are typically asked to pay a fixed interest rate and monthly payment for 24 to 84 months, at which point your car will be paid off. Many dealerships offer financing, but you can also find auto loans at national banks, local credit unions and online lenders.
When shopping for an auto loan, compare APRs across multiple lenders to make sure you are getting a competitive rate. Look for lenders that keep fees to a minimum and offer repayment terms that fit your needs.
Loan details presented here are current as of publication. Check the lenders’ websites for more current information. The auto loan lenders listed here are selected based on factors such as APR, loan amounts, fees, credit requirements and more.
Types of auto loans
Car loan options go beyond just new and used. Each auto loan type has specific uses that cater to certain types of borrowers, and knowing what type you need can make the loan shopping process easier.
New car loan
If you are looking to purchase a new car, you should seek out a new car loan. Dealerships offer new car financing on the lot, but you can also get them from banks, credit unions and online lenders. Shop around for your best interest rate and terms.
Used car loan
Buying a used car from a dealership will require a used car loan. You can get them at the same places you would get a new car loan. Lenders often limit cars’ age and mileage.
Auto refinance
If you originally took out a loan at a dealership, or just didn’t get a good rate, you may want to refinance your car and get a better interest rate. Or you can rework your terms to get a lower monthly payment. This process simply replaces your current auto with a new one. These loans aren’t available through dealerships.
Cash-out auto refinance
To get a little extra cash with your refinance, you can take out a cash-out refinance loan. Along with the balance you are refinancing, you can borrow against the equity you have in your car.
Private party
When you are buying a used car from an individual seller and do not have the cash on hand, you will need a private party auto loan. These are less common, but available at some banks, credit unions and online lenders.
Lease buyout
Leasing a car can come with the option to buy the vehicle at the end. You can take out a lease buyout loan to finance that purchase. Lease buyout loans tend to be similar to used car loan rates.
