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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 providing you with interactive tools and financial calculators that provide objective and original content, by enabling you to conduct your own research and compare data at no cost – so you can make financial choices without a doubt. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this site are from companies that pay us. This compensation could affect how and where products appear on the site, such as for instance, the order in which they appear in the listing categories and other categories, unless prohibited by law for our mortgage or home equity products, as well as other products for home loans. But this compensation does affect the information we publish, or the reviews that appear on this website. We do not include the universe 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 This article was generated with the help of automation technology, and then checked and edited by an editor on our editorial team. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched facts that break down complex subjects into digestible pieces. The Bankrate promises

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We make sure that everything we publish will ensure that our content is reliable, honest and reliable. We have loans reporters and editors concentrate on the points consumers care about the most — the different types of lending options, the best rates, the top lenders, how to repay debt, and much more. So you’ll be able to feel secure when investing your money. Integrity of the editing

Bankrate has a strict policy standard of conduct, which means you can be confident that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to aid you in making the best financial decisions. Key Principles We value your trust. Our goal is to offer readers reliable and honest information, and we have standards for editorial content in place to ensure that this happens. Our reporters and editors rigorously check the accuracy of editorial content to ensure the information you’re receiving is true. We have a strict separation between our advertisers and our editorial team. Our editorial team doesn’t receive any direct payment from our advertisers. Editorial Independence Bankrate’s editorial team writes on behalf of YOU – the reader. Our aim is to offer you the most accurate advice to assist you in making smart financial decisions for your personal finances. We follow the strictest guidelines in order to make sure that content isn’t in any way influenced by advertising. Our editorial team receives no any compensation directly from advertisers and all of our content is checked for accuracy to ensure its truthfulness. So, whether you’re reading an article or a review you can be sure that you’re receiving reliable and dependable information. What we do to earn money

If you have questions about money. Bankrate can help. Our experts have helped you understand your finances for over four decades. We continually strive to give our customers the right advice and the tools required to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct standard of conduct, so you can rest assured that our content is honest and reliable. Our award-winning editors, reporters and editors produce honest and reliable information to assist you in making the right financial choices. The content we create by our editorial staff is objective, factual and is not influenced by our advertisers. We’re honest regarding how we’re able to bring quality information, competitive rates and helpful tools to our customers by describing how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and services, or through you clicking specific links on our site. This compensation could influence the manner, place and in what order products appear in listing categories in the event that they are not permitted by law. We also offer mortgage or home equity products, as well as other home loan products. Other factors, such as our own rules for our website and whether the product is available in your region or within your self-selected credit score range could also affect the way and place products are listed on this site. We strive to offer a wide range offers, Bankrate does not include specific information on every credit or financial item or product. If you’re planning to refinance an existing loan there are several options for financing. Each type of auto loan has each of its pros and cons, as well as specific applications. Certain types of loans can be used to finance purchases, while others can only be used in the event that you already have already got an auto loan. It is therefore important to conduct your research before you decide the best option for you and your needs. New car loans can be used to buy new cars. You can secure financing from the dealer however, it’s not required. You can often get a better deal by making use of a traditional bank, credit union or online lender However, they can make the process more seamless. The typical loan term is a of between three and five years. Certain lenders offer loan terms that are . The loan amount along with the interest rate and repayment period determine your monthly payment Check out Bankrate’s for an estimate. Based on the arrangement for financing you could also have to pay . Financial experts recommend that you put at minimum 20% down, however it’s best to pay only what you can comfortably afford. Used automobile loans A is a form of auto loan that allows you to finance the purchase of a used car. They’re available through traditional banks, auto dealers as well as credit unions, and online banks. A few of the most sought-after used car loans are available for , or CPO, vehicles that usually include an extra warranty. However, many lenders also are willing to offer second-hand car loans for cars that aren’t CPO vehicles. The used car loans are typically repaid in monthly installments over 3 to 5 years. Like new car loans the monthly installment is determined by the terms of the financing contract. Be aware that a majority of lenders have limits on the maximum age and mileage of vehicles that are eligible for financing. Auto refinance loans allow the borrower to obtain a new loan to take over your existing one. You can apply for one if you have a loan with a higher rate of interest and would like to take out to get a new loan with the lowest interest rate or a longer time. With a lower interest, you may be able make savings over the long haul. The longer duration will lower your monthly payments. However, due to the fact that interest is charged the term won’t reduce the total cost. It is necessary to have 670 or more to get the best rates. If your credit score is less than ideal then you may want to look at alternative options, for instance, to pay off the loan. Cash-out refinance of auto loans A are similar to traditional refinancing. It lets you convert your car’s equity into cash. It will replace the current loan with a new loan which includes the equity you took out. Typically, the equity in your vehicle limits the amount you can get back. A cash-out refinance’s main draw is having more cash available at your available. You could also secure better terms for financing, making your monthly payment more affordable. However, you’ll have to be charged more interest, which means you’ll pay more over the course that you pay for the loan. Private car loans for parties loans A is an loan taken out specifically for the purchase of a vehicle owned by a private party. Online lenders and banks provide this kind of loan. Because this type of loan is secured by the vehicle however, there are restrictions on what types of vehicles you can buy. Cars must typically be 10 years old or less than 150,000 miles. Buyout of lease loans A is exactly what it’s akin to: It’s a car loan which can be used to buy the vehicle you lease. You own the vehicle , while the lender permits you to keep making the same monthly installments you made throughout the lease. Be aware of the distinction between buying from a dealer and a buyback. Dealer buyouts are available when you buy a car for cash, as you purchase the car from the dealership , instead renting it. Buybacks occur when the dealer purchases the vehicle you lease from you prior to when the lease is up. Other auto loan variations Auto loans also vary depending on the method by which interest is computed, how you obtain the loan and if it is loan is secured with collateral. The above loans may be made using simple interest or precomputed interest, and be secured or unsecured, and are available through the use of indirect or direct funding. Simple interest loans compare to. precomputed interest auto loans Auto loans are available in two forms of interest. Precomputed. Basic interest loans are much more common. They calculate the amount of interest you pay every month, based on the interest rate and loan balance. Early in your loan term, a greater portion of your monthly payments go toward interest; the balance changes late in your term. have the loan balance, origination fees and interest calculated at the start and then divided over the loan term. Principal and interest payments are the same every month. If you pay on time for each payment throughout the entire loan period, there’s 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 — because the interest rate for the entire loan term is already built into the total amount to be paid. Direct auto financing vs. indirect auto financing The distinction is to do with the way you obtain the loan through the lender directly or by working with a dealer. This is when you get auto financing through a bank or . Affiliation with an approved lender before going to an auto dealer can give you an edge during negotiations. You will receive the amount of the loan and the interest rate. This will allow you to look for a car and know the exact amount you can spend. The dealer simply verifies the information and completes the transaction. Or, you can use the offer for negotiating a lower price for financing from the dealer. With , the dealer offers its own financing via its lending partners. The dealer works with you to fill out an auto loan application. The dealer forwards your application to a lender or lenders. While indirect financing may be beneficial, dealers may increase the interest rate so that they make money. Secured and. unsecure auto loans Secured car loans require collateral to the lender which is typically the car title. Banks generally provide better rates of interest as well as more flexible eligibility requirements for secured loans due to the collateral. These are personal loans used to purchase a new or used car. They come with higher interest rates and requirements for qualification due to the lack of collateral. To be eligible for an unsecured loan one must have an impressive credit score, a borrowing background that shows a record of consistent, on-time payments, and a stable source of earnings. The fact is that not all auto loans are created equal. The best option is one that meets your needs financially will depend on if you’re looking to purchase a new or used car or refinance your current loan to secure more competitive financial terms, or even take out a loan against the equity in your vehicle. Before you decide which kind of auto loan is best be sure to know what each one has to provide. Additionally, you should identify the best lenders and get pre-approved to ensure you score a competitive financing offer. Find out more

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Written by The article was created using automated technology that was then thoroughly edited and checked by an editor from our editorial team. Edited by Rhys Subitch The article was edited by Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping their readers to manage their finances through providing precise, well-researched and clear information that breaks down complex topics into manageable bites.

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