What Is an Auto Loan? A Comprehensive Guide to Vehicle Financing

With many lenders, you can pre-qualify or get preapproved for an auto loan in minutes. Pre-qualification is usually done with a soft credit inquiry, so it won’t affect your credit scores. You receive an estimate of loan rate and payment, but estimates could change if you move forward with the pre-qualified offer.

1. From traditional banks and credit unions to online lenders and dealership financing, there are several options available to prospective car buyers.
2. These are less common, but available at some banks, credit unions and online lenders.
3. With our car loan calculator, you can input various loan amounts, rates and terms to see different payment scenarios.
4. Navigating auto loans involves understanding the different types available, including direct auto loans, indirect auto loans, precomputed auto loans and simple interest auto loans.

Consider what your current monthly expenses are, and how adding the loan payment will affect your overall budget. Determine what options are available to you to pay for the vehicle. Use a lease versus purchase calculator to determine which option is better for you.

Getting approved or preapproved for an auto loan with a lender before heading to the dealership can give you more bargaining power during negotiations. You’ll typically find precomputed interest loans from lenders that work with bad-credit buyers. Precomputed interest loans have the loan balance, origination fees and interest calculated at the beginning and divided across the loan term according to a formula called the rule of 78. LendingTreeAutos obtains listing information from auto dealers and other third parties directly so that you can shop multiple dealers. Start your search with your current bank or credit union, which may give you a rate discount for setting up automatic payments from your checking or savings accounts.

How We Make Money

The monthly payments for a lease are typically lower than those for an auto loan, but bear in mind that you don’t accumulate any equity in the vehicle. You should run the numbers before getting an auto loan so you’ll know what to expect. Use the Bankrate auto loan calculator to compare borrowing costs on auto loans with different rates and terms. As a consumer, you can choose between financing your purchase through the dealer (indirect financing) or finding and securing a lender yourself (direct financing). Indirect financing is convenient and can open options for borrowers with bad credit.

Car Loans

You may have special circumstances that require a specialized type of loan, such as these below. If you want to pay off what is auto loan the loan early, you can make additional principal payments, which will cut the total amount owed and, as a result, will reduce the amount of interest on the loan. Rates for unsecured loans are usually higher, in order to compensate the lender for higher risk. Because the loan amount is based on your creditworthiness, not the value of the car, you can get an unsecured loan first and then go shopping for a car. Our partners cannot pay us to guarantee favorable reviews of their products or services. For example, if you buy a new vehicle and finance all of it at $30,000 and get in an accident one year later, you may owe more on the vehicle than it is now worth after depreciation.

Bankrate logo

LightStream is one of the most recognized online lenders in the auto loan space. It provides unsecured loans, which means borrowers receive funding directly without providing the vehicle as collateral. This results in fast funding, which is perfect for those who are looking to finance as soon as possible. A precomputed auto loan is a type of loan where the total amount you’ll pay over the life of the loan is calculated in advance.

This total amount is then divided by the number of months in your loan term to determine your monthly payment. An indirect auto loan is a form of financing where the car dealership facilitates the loan for you. In this scenario, the dealership acts as a middleman between you and the actual lender, which could be a bank, credit union or other financial institution.

Autopay: Bankrate award winner for best auto loan online lender

With indirect financing, the dealer offers its own financing through its lending partners. You work with the dealer to fill out your auto loan application, which the dealer then sends to a lender or lenders. Your loan amount, interest rate and repayment period determine your monthly payment. Use an auto loan calculator to get an estimate of your monthly payment. The amount you qualify for depends on the type of loan you’re seeking — a new or used car loan — and the details of your personal finances.