Taking out an auto loan is the traditional financing option for car buyers. It is the most convenient way to purchase a car; simply head to the dealership, pick out a car and get approved for an auto loan right there in the office. Aside from being easy, it also tends to be more affordable. The loan is secured against the vehicle you’re buying, so lenders can offer lower interest rates.
When you use an auto loan to purchase a car, you’ll need to make monthly payments. The lender owns it until you pay off the remaining balance, which means that it has the right to take your car if you stop making your payments. Continue reading on to learn more about using an auto loan to purchase a car.
Some people dread the car buying process, but it can be quick and painless when you finance with an auto loan. The dealership handles everything on site, so there’s no need to go from bank to bank trying to secure a personal loan.
You can still “shop around” for auto loans, too – the dealer may have a preferred lender, but you don’t always have to use the one they suggest. By checking out a few different lenders, you can get a better idea of what your payment will be.
Generally, car loans have one of the following terms:
- 36 months
- 48 months
- 60 months
- 72 months
The longer the loan term, the lower your monthly payment (since payments will be spread out over more time). Keep in mind that you will pay more in interest over time, since there are more payments.
The interest rates tend to be lower than personal loans, too, since lenders use the vehicle as collateral. Because of this, it is often easier to qualify for an auto loan. The average interest rate on a 60-month car loan in the U.S. is 5.27%. However, keep in mind that rates can vary depending on the term of the loan, the age of the car you want to finance, as well as other relevant factors.
And if you don’t have great credit, you can still qualify for an auto loan. Lower credit might impact the amount of the loan and usually results in a higher interest rate, but the chance of approval is better than that of a personal loan.