Types of auto loans: Find which is right for you Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive tools and financial calculators that provide objective and original content. This allows you to conduct research and compare data at no cost - so you can make financial decisions with confidence. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies who pay us. This compensation could affect how and when products are featured on the site, such as such things as the order in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does affect the information we publish, or the reviews appear on this website. We do not cover the vast array of companies or financial offers that may be available to you. Maskot/Getty Images
5 min read published on December 23, 2022.
Written by Bankrate Written by Bankrate. This article was written with the help of automation technology, and then checked and edited by an editor from our editorial team. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are enthusiastic about helping readers gain confidence to manage their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee
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We are compensated in exchange for placement of sponsored products and services, or by you clicking on certain hyperlinks on our website. So, this compensation can affect the way, location and in what order items appear within listing categories and categories, unless it is prohibited by law for our mortgage home equity, mortgage and other home lending products. Other factors, such as our own website rules and whether the product is available in your area or at your own personal credit score could also affect how and when products appear on this website. We strive to offer an array of offers, Bankrate does not include specific information on every credit or financial products or services. When you're ready to or refinance an existing loan there are several options for financing. Each kind of auto loan has distinct pros and cons and specific uses. Some can be used for purchases, while some are only available if you currently own already got an auto loan. Therefore, it's essential to conduct the necessary research before deciding the best option for your situation and needs. New car loans are used to purchase new vehicles. It is possible to secure financing through the dealer however it's not a requirement. You'll usually find a better deal using a traditional bank or credit union lender however, it can make the process more seamless. The typical loan term is a of three to five years. Some lenders feature loan conditions of . Your loan amount as well as the interest rate , and repayment time determine your monthly payments Check out Bankrate's to get an estimate. Depending on the financing arrangement you could also be required to pay . Financial experts suggest that you make at least 20% down, but it's recommended to pay what you can comfortably be able to afford. Used automobile loans A are a kind of vehicle loan that lets you finance the purchase of a used car. They're offered through traditional banks, auto dealers, credit unions and online banks. Many of the most well-known utilized car loans are available for , or CPO vehicles that typically have an extended warranty. Many lenders also provide used vehicle loans for vehicles that aren't CPO vehicles. The used car loans are usually repaid in monthly installments over three to five years. As with new vehicle loans, the monthly payment is determined by the terms of the financing agreement. Be aware that a majority of lenders have restrictions regarding the maximum mileage and age of vehicles which are eligible for financing. Refinancing your auto loans allow you to get the new loan to take over your existing one. It is possible to apply for one if you're in the middle of an existing loan that has a higher rate of interest rate and you want to get an alternative loan with the lowest interest rate or a longer time. With a lower interest, you may be able make savings in the long term. A longer-term contract will lower the monthly payment. But, because of the interest, it won't lower your total cost. You'll need to have a credit score of 670 or more to get the best rates. If your credit score is poor You might want to consider alternatives, like to pay off the loan. Cash-out refinance of auto loans A are comparable to refinancing traditional. It allows you to convert your car's equity into cash. You'll be able to replace your current loan by a new one which includes the equity you have borrowed. Typically, the amount of equity you have in your car will limit the amount you get back. A cash-out refinance's main draw is having more cash available at your available. It is also possible to secure better financing terms, making your monthly payments more affordable. However, you'll have to have to pay higher interest, meaning you'll be paying more money over the course of your loan. Private car loans for parties loans A is an loan that is specifically aimed at buying a vehicle that is owned by a private entity. Banks, and online lenders provide this kind of loan. Since the loan can be secured through the car, there are limitations in the type of vehicle you can purchase. The car must be 10 years old or younger , and less than 150,000 miles. Lease buyout loans A is exactly what it's name suggests it's a loan which can be used to purchase the leased vehicle. You take ownership of the vehicle , while the lender permits you to keep with the regular monthly installments you paid throughout the lease. It is important to know the distinction between a dealer buyout and buyback. Dealer buyouts are available when you buy a car in cash, since you buy the vehicle from the dealership instead renting it. A buyback occurs when the dealer buys the leased vehicle from you before the lease is up. Other auto loan variations Auto loans can also differ depending on the method by which interest is calculated, how you receive the loan and whether it is loan is secured with collateral. The above loans can be made with simple or precomputed rates, be secured or unsecure and are available through direct or indirect financing. Simple interest loans compare to. precomputed interest auto loans Auto loans can be of two kinds of interest. Precomputed. Basic interest loans are more popular. They calculate the interest to be paid each month based upon the interest rate and current loan balance. In the beginning of the loan term, a larger portion of your monthly payments go toward interest; the balance flips late in your period. Have the loan balance, origination fees and interest calculated at the start and then divided over the loan duration. Both principal and interest payments are the same every month. If you make timely payments for each installment over the entire loan term, there is no difference between them. However, if you plan to pay more and have a precalculated interest loan will not help you save money because the interest rate for the entire loan period is already incorporated into the amount of your payment. Direct auto financing vs. indirectly auto financing This distinction has to do with how you can get your loan: By working with the lender directly or through a dealer. This is when you get auto financing through a bank or . Getting approved or with the lender before going to an auto dealer can provide you with an advantage in negotiations. You will be given the amount of the loan and an interest. This allows you to shop for a car knowing precisely what you will spend. The dealer simply verifies the information and completes the transaction. If you want, you can utilize the offer for negotiating a lower rate in financing the dealership. With , the dealer offers its own financing via their lending partnerships. The dealer works with you to complete your auto loan application. The dealer forwards your application to an lender or lenders. Although indirect financing is convenient, the dealer may mark up the interest rate to ensure they earn. Secured and. secured car loans Car loans require collateral to the lender -- typically the car title. Banks generally offer better rates of interest as well as more flexibility on qualification for secured loans because of the collateral. Personal loans for the purchase of new or used cars. They have higher interest rates and qualification standards because they lack collateral. To qualify for an unsecured loan the borrower must have an impressive credit score, as well as a loan background that shows a history of punctual, on-time repayments, along with a steady source of income. In the end, not all auto loans are the same. The option that best suits your needs financially will depend on if you want to buy a brand new or used vehicle, refinance your current loan to obtain more competitive financial terms, or even borrow against the equity you own in your vehicle. Before you decide which kind car loan is the best choice make sure you understand what each has to provide. Also, shop around to locate the top lenders and then get pre-approved to be sure you get an affordable financing deal. Learn more
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Written by This article was produced using automation technology, and thoroughly edited and fact-checked by an editor from our editorial staff. Edited by Rhys Subitch The article was edited by Auto loans Editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to control their finances through providing clear, well-researched facts that break down otherwise complex subjects into bite-sized pieces.
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