Facts on Auto Loans

If you are in the market for a new car, chances are you are also in the market for a car loan. Car loans can be very expensive if you do not shop carefully for them. Before you spend too much time looking for the perfect car, make sure you have access to the perfect car loan.

Function

A car loan is any loan that you use to buy a vehicle, and the car is usually used as collateral to secure the loan. This means that the bank can repossess the car if you do not repay the loan.

Types

You can get a car loan from the dealership, your bank, or another lender, however, generally, the best interest rates come from a lender independent from the dealership.

Features

Each payment you make for your car loan has two parts, an interest portion and a principal portion. The interest is the fee you pay the bank for the loan, and the principal is the balance of what you owe.

Warning

The interest rate on car loans varies significantly from lender to lender, so be sure to shop around to get the best rate.

Considerations

While most people have to finance some of the cost of their car, remember that cars depreciate quickly, so try to use cash for as much of your car purchase as you can.

Expert Insight

If you need to save on your car loan, consider putting down a larger down payment on the vehicle or cashing out on the equity in your home to purchase the car.

Resources

• Lending Tree - Car Loans and Interest Rates
• Finance for Your Car Purchase