Types of auto loans: Find which is right for you Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering interactive tools and financial calculators, publishing original and objective content. This allows users to conduct research and evaluate information for free – so that you can make financial decisions without a doubt. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The products that appear on this site come from companies that pay us. This compensation can affect the way and when products are featured on this website, for example 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. This applies to our mortgage, home equity and other products for home loans. This compensation, however, does have no impact on the information we provide, or the reviews you read on this site. We do not contain the universe of companies or financial offers that may be available to you. Maskot/Getty Images
5 minutes read. Published December 23, 2022
Written by Bankrate Written by This article was generated with the help of automation technology, and then edited and fact-checked by an editor from our editorial staff. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances by providing clear, well-researched information that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate promise
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We receive compensation for the placement of sponsored products and services, or through you clicking certain links posted on our website. This compensation could affect the way, location and when products appear within listing categories, except where prohibited by law for our mortgage home equity, mortgage and other products for home loans. Other factors, like our own proprietary website rules and whether the product is offered in the area you reside in or is within your own personal credit score can also impact how and when products appear on this site. Although we try to offer an array of offers, Bankrate does not include specific information on each credit or financial products or services. If you’re planning to refinance your existing loan, you have several options for financing. Each kind of auto loan has each of its pros and cons, as well as specific uses. Certain types of loans can be used to finance purchases, while others are only available when you already have already got an auto loan. It is therefore important to conduct your research before you decide which is right for you and your requirements. New automobile loans can be used to buy brand-new cars. It is possible to secure financing through the dealer however, it’s not required. You can often get a better deal by using a traditional bank, credit union or online lender however, it can help make the process easier. In general, you get between three and 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 for an estimate. Depending on the financing arrangement, you may also be required to pay . Financial experts recommend that you put at least 20 percent down, but it’s recommended to pay what you can manage to. Used automobile loans A is a type of auto loan that allows you to finance a used vehicle. They’re offered through traditional banks, auto dealers as well as credit unions, and online banks. Many of the most well-known loans for used cars loans are for CPO, vehicles that usually have an extended guarantee. However, many lenders also are willing to offer second-hand car loans for vehicles which are not CPO vehicles. Car loans are typically repaid in monthly installments, spread over three to five years. Like new automobile loans the monthly installment is determined by the financing agreement’s terms. Be aware that many lenders have restrictions regarding the maximum mileage and age of vehicles eligible to be financed. Refinancing your auto loans permit the borrower to obtain a new loan to replace your current one. You can apply for one if you’re in the middle of a loan with a higher interest rate and want a new loan with the lowest interest rate or a longer time. With a lower rate you could be able make savings in the long term. A longer term will also lower your monthly payments. However, due to interest the term won’t reduce your total cost. You’ll need a of 670 or higher to qualify for highest rates. If your credit score is poor You might want to consider other options, such as to repay your loan. Cash-out refinance of auto loans A are similar to conventional refinancing. It lets you convert your car’s equity into cash. You’ll replace the current loan with a new one that includes the equity you took out. Typically, the amount of equity you have in your car limits the amount you get back. A cash-out refinance’s main draw is the fact that you have more cash at your disposal. You can also get more favorable financing terms, which will make your monthly payment more affordable. But, you’ll still have to be charged more interest, which means you’ll have to pay more over the life that you pay for the loan. Private auto loans A is an loan made specifically for buying a vehicle owned by a private party. Online lenders, as well as banks offer this type of loan. Since this type of loan can be secured through the car There are some limitations regarding the types of cars you can buy. Cars must typically be at least 10 years old younger , and less than 150,000 miles. Buyout of lease loans A is what it’s name suggests it’s a loan that allows you to purchase the car you leased. The buyer takes ownership of the vehicle while the lender permits you to keep making the same monthly installments you paid throughout the lease. It is important to know the distinction between the two types of buyouts: a dealer buyout or buyback. Dealer buyouts can be obtained when you buy a car for cash, as you purchase the car from the dealership instead of leasing it. A buyback occurs when the dealer purchases the car you have leased from you prior to when the lease is up. Another auto loan variations The auto loans can also differ in the way interest is computed, how you obtain the loan and if the loan is secured by collateral. The above loans may be made using simple interest or precomputed interest, be secured or unsecured, and be obtained through direct or indirect financing. Simple interest loans are different from. the precomputed rate auto loans Auto loans can have two types of interest: precomputed or. Simple interest loans are much more common. They calculate the interest to be paid each month based on the rate of interest and the current loan balance. In the beginning of the loan term, a larger portion of your monthly payment goes toward interest; the balance is flipped later in the period. Have the loan balance the origination fee and interest calculated prior to the start of the loan and divided across the loan term. Both principal and interest payments are the same each month. If you pay on time for each payment throughout the whole loan term, there is very little difference between the two. If you intend to make more or larger payments and have a precalculated interest loan will not save you money — since interest for the entire loan period is already incorporated into the amount of your payment. Direct auto financing in contrast to. indirect auto financing The distinction is to do with the way you get your loan by working with a lender directly or by working through a dealership. This is when you get auto financing from a lender or . Affiliation with a lender before going to the dealership will give you an edge during negotiations. The amount you receive will depend on the of the loan as well as an interest. This will allow you to look for a car and know exactly how much you can spend. The dealer checks that information and concludes the transaction. If you want, you can utilize the offer in order to bargain a more favorable price in financing the dealership. In this case, the dealer provides its own financing through its lending partners. You collaborate with the dealer to complete the auto loan application, and the dealer forwards your application to the lender or lenders. While indirect financing may be advantageous, the dealer could increase the interest rate in order to make sure they profit. Secured vs. secured auto loans secured car loans require providing security to the lender — typically the car’s title. Banks typically offer higher interest rates and more flexible eligibility requirements for secured loans due to the collateral. These are personal loans that are used to buy new or used cars. They have higher interest rates and qualification standards due to the absence of collateral. To be eligible for an unsecured loan the borrower must have a solid credit score, a borrowing record that shows a of regular, timely payment, as well as a reliable source of earnings. The bottom line Not each of the auto loans are the same. The option that best suits your financial requirements will depend on if you’re looking to purchase a brand new or used vehicle or refinance your current loan to secure more competitive financial terms, or even use the equity in your car. Before deciding on which type car loan is the best choice, do your homework to know what each one has to provide. Also, do some research to identify the best lenders and be pre-approved to ensure you score a competitive financing offer. Find out more
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The article was written by generated using automation technology and was thoroughly checked for accuracy and quality by an editor from our editorial staff. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping their readers gain the confidence to take control of their finances by providing clear, well-researched details that cut otherwise complex topics into manageable bites.
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