What Is an Auto Loan?

An auto loan is a type of installment loan used to finance the purchase of a vehicle. You borrow a fixed amount of money and repay it over time with interest, typically in monthly payments.

How auto loans work

With an auto loan, the lender pays the seller (dealer or private party) on your behalf. You then repay the lender over a set loan term, usually between 36 and 72 months.

The vehicle typically serves as collateral, meaning the lender can repossess it if you fail to make payments.

New vs used auto loans

Interest rates and terms can differ depending on whether you’re buying a new or used vehicle. New cars often qualify for lower rates, while used cars may have shorter loan terms.

Key parts of an auto loan

• Loan amount (vehicle price minus down payment)
• Interest rate (APR)
• Loan term (length of repayment)
• Monthly payment

Where auto loans come from

Auto loans are available from banks, credit unions, online lenders, and dealerships. Comparing offers can help you find better rates and terms.

Is an auto loan right for you?

An auto loan can make car ownership more accessible, but it’s important to choose a loan you can comfortably afford. Longer terms may lower monthly payments but increase total interest paid.