An auto loan is a type of loan typically secured by collateral — the vehicle you purchase — though some lenders offer unsecured auto loans. Auto loans can be used to buy new or used cars, refinance a current loan, buyout a lease or purchase recreational and powersport vehicles.
Auto loan lenders typically have repayment terms ranging from 36 to 84 months, though some may offer shorter or longer term limits. Keep in mind that if you default on your loan, your lender may repossess your car and your credit score will suffer.
How do auto loans work?
With an auto loan, you agree to repay a lender over a set term, typically three to six years, in exchange for them paying a dealership (or a private seller) so that you can get a car. By paying interest, your total cost of borrowing is higher than the purchase price of your car, which equates to profit for the lender. How much more you pay in interest will largely depend on your credit score.