Types of auto loans: Find which is right for you Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive tools and financial calculators as well as publishing original and objective content. This allows you to conduct research and compare information without cost, so that you can make financial decisions without a doubt. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that pay us. This compensation may impact how and where products appear on this website, for example such things as the order in which they may 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. This compensation, however, does affect the information we provide, or the reviews that you see on this site. We do not include the vast array of companies or financial offerings that could be available to you. Maskot/Getty Images

5 min read published on December 23, 2022.

Written by Bankrate This article was generated by using automated technology. It was then thoroughly verified and edited 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 late 2021. They are passionate about helping readers gain the confidence to control their finances through providing concise, well-researched and informative facts that break down complex topics into manageable bites. The Bankrate promises

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If you have questions about money. Bankrate has answers. Our experts have helped you understand your finances for over four years. We strive to continuously provide consumers with the expert guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate follows a strict standard of conduct, so you can rest assured that our information is trustworthy and reliable. Our award-winning editors, reporters and editors create honest and accurate content to help you make the right financial choices. The content we create by our editorial team is factual, objective and uninfluenced from our advertising. We’re honest regarding how we’re able to bring quality content, competitive rates and useful tools for you , by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for the placement of sponsored products and services or when you click on certain hyperlinks on our website. So, this compensation can affect the way, location and when products appear in listing categories in the event that they are not permitted by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other elements, such as our own rules for our website and whether or not a product is offered in your area or at your personal credit score could also affect the way and place products are listed on this site. Although we try to offer an array of offers, Bankrate does not include details about every financial or credit products or services. If you’re planning to refinance an existing loan there are various financing options. Every type of auto loan comes with each of its pros and cons as well as particular uses. Certain types of loans can be used to finance purchases, while others can only be used in the event that you already own the auto loan. So it’s important to do the necessary research before deciding what is best for your situation and needs. New car loans are used to purchase new vehicles. It is possible to secure financing through the dealer, but it’s not mandatory. You’ll usually obtain a better rate using a traditional lender, credit union or online lender, but may help make the process easier. You generally get three to five years. Some lenders have loan terms that are . The loan amount, interest rate , and repayment time determine your monthly payments Check out Bankrate’s to find an estimate. In accordance with the loan arrangement it is possible that you will be required to pay . Financial experts recommend that you make at least 20% down, however it’s best to pay only what you can comfortably be able to afford. Used car loans A is a type of vehicle loan which allows you to finance a used vehicle. They’re available through traditional banks, auto dealers or credit unions as well as online banks. A few of the most sought-after utilized car loans are for CPO, vehicles that usually come with an extended guarantee. Many lenders also offer used car loans for vehicles that are not CPO vehicles. The used car loans are typically paid back in monthly installments, spread over 3 to 5 years. Like new vehicle loans the monthly installment is determined by the terms of the financing agreement. Be aware that many lenders have restrictions regarding the maximum age and mileage of vehicles that are eligible to be financed. Auto refinance loans permit you to take out 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 with a higher rate of interest and would like to take out an alternative loan with a lower interest rate or a longer term. With a lower rate you could be able make savings in the long term. A longer term will also lower the monthly payment. However, due to interest this won’t decrease the total cost. You’ll need to have a credit score of 670 or more to get the highest rates. If your credit score is not perfect then you may want to look at other options, such as to pay off the loan. Cash-out refinance of auto loans A are comparable to conventional refinancing. You can transform the equity in your car into cash. You’ll be able to replace the current loan with a new loan that will include the equity you have borrowed. Typically, the equity you have in your car will limit the amount you get back. Cash-out refinance’s primary benefit is having more cash at your at your disposal. You could also secure better financing terms, making your monthly payments less expensive. However, you’ll have to be charged more interest, meaning you’ll pay more over the course of your loan. Private car loans for parties loans A is a loan made specifically for purchasing a car that is owned by a private entity. Banks, and online lenders provide this kind of loan. Because the loan is secured by the car, there are limitations in the type of vehicle you are able to purchase. Cars must typically be at least 10 years old less than 150,000 miles. Purchase buyouts of lease loans A is exactly what it’s akin to: It’s a car loan that allows you to purchase the leased vehicle. You own the vehicle while the lender allows you to continue paying the monthly payments that you made throughout the lease. You should know the difference between buying from a dealer and buyback. Dealer buyouts are available when you purchase a car for cash, because you purchase the car from the dealership instead renting it. A buyback is when the dealer purchases the vehicle you lease from you before the lease ends. There are other auto loan variations Auto loans are also different in the way interest is calculated, how you obtain the loan and whether you are able to prove that the loan is secured with collateral. The above loans can be made with simple or precomputed rates, be secured or unsecure and be obtained through either indirect or direct financing. Simple interest loans are different from. precomputed interest loans for auto loans Auto loans can have two types of interest: or precomputed. Simple interest loans are more popular. They calculate the amount of interest you pay every month, based on the interest rate and current loan balance. In the beginning of the loan term, a greater portion of your monthly payments go to interest. The balance changes late in your time. You will have the loan balance the origination fee and interest calculated at the beginning and then divided over the loan period. Both principal and interest payments are the same each month. If you pay on time for each payment over the entire loan period, there’s very little difference between the two. If you intend to make more or larger payments or make larger payments, a pre-calculated interest loan will not help you save money because interest over the whole loan term is already factored into the amount of your payment. Direct auto financing in contrast to. indirectly auto financing The distinction is to do with how you can get the loan: By working with the lender directly or with a dealer. This is when you get auto financing from a bank or . Affiliation with the lender before going to the dealership will give you an edge during negotiations. You will be given the amount of the loan as well as the interest rate. This allows you to look for a car and know the exact amount you can spend. The dealer checks that information and concludes the transaction. Or, you can use the offer you’ve received for negotiating a lower deal for financing from the dealer. The dealer can offer its own financing through their lending partnerships. You work with the dealer to complete the auto loan application, and the dealer sends the application to an lender or lenders. While indirect financing can be advantageous, the dealer could raise the interest rate so that they profit. Secured vs. secured automobile loans Secured car loans require providing collateral to the lender — typically the title of the vehicle. Banks typically offer higher rates of interest and greater flexibility on qualification for secured loans due to collateral. Personal loans for the purchase of a new or used car. They are characterized by higher rates of interest and qualification standards due to the lack of collateral. To be eligible for an unsecured loan the borrower must have a solid credit score, and a credit record that shows a history of punctual, on-time payments, and a reliable source of earnings. The bottom line Not every auto loans are the same. The option that best suits your financial requirements will be determined by whether you want to buy a brand new or used vehicle or refinance your current loan to obtain more competitive financial terms, or even take out a loan against the equity you have in your car. Before deciding which type or auto loan is best be sure to understand what each has to provide. Additionally, you should identify the best lenders and then get pre-approved to be sure you get the best financing rate. Learn more


Written by The article was generated using automation technology and thoroughly edited and fact-checked by an editor from our editorial team. Editor: Rhys Subitch Edited by Auto loans Editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping their readers to control their finances through providing concise, well-researched, and well-organized information that breaks down otherwise complex topics into manageable bites.

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