Understanding Auto Loans

By Ryan Bayonnet - This lesson explains how auto loans work and how you can use then to affordably purchase a vehicle.


Most Americans do not have the money available to purchase a vehicle in cash. That's why auto loans are an available option to make owning a vehicle more financially viable.

Loan Term

A loan's term is how much time it will take you to pay off the loan. For vehicles this typically ranges between 3-5 years. The longer the loan term, the lower your monthly payment and the higher overall interest changes you will pay,

Interest Rate

The interest rate is the cost you pay for borrowing money. Those will a good credit score will pay a lower interest rate and therefore will spend less in interest charges over the life of the loan.

Down Payment

Many lenders will require that you place a certain amount of money "down" on a car to purchase a vehicle. Those who want to reduce the term or balance of their loan can place a larger down payment.


Auto loans can be a great way to purchase a vehicle if you are not able to afford a car in cash.

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