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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 mission is to help you make better financial decisions by offering interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and evaluate information without cost, so that you can make financial choices with confidence. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site come from companies who pay us. This compensation may impact how and when products are featured on this site, including for instance, the order in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home loan products. However, this compensation will not influence the information we publish, or the reviews that you read on this site. We do not include the universe of companies or financial deals that might be accessible to you. Maskot/Getty Images

5 minutes read. published on December 23, 2022.

Written by Bankrate Written by The article was created using automation technology and thoroughly verified and edited by an editor from 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 control their finances by providing concise, well-researched and informative information that breaks down complicated topics into bite-sized pieces. The Bankrate promise

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We make sure that everything we publish ensures that everything we publish is accurate, objective and reliable. We have loans reporters and editors focus on the areas that consumers are concerned about the most — the different types of lending options as well as the most favorable rates, the most reliable lenders, how to repay debt, and more — so you’ll be able to feel secure when making a decision about your investment. Editorial integrity

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You have money questions. Bankrate has the answers. Our experts have been helping you manage your money for over four years. We strive to continuously provide our readers with the professional advice and the tools required to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and precise. Our award-winning editors and journalists produce honest and reliable information to assist you in making the right financial decisions. The content we create by our editorial team is objective, truthful, and not influenced from our advertising. We’re transparent about how we are able to bring quality information, competitive rates and useful tools to our customers by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and services, or by you clicking on specific links on our website. So, this compensation can influence the manner, place and in what order products are listed, except where prohibited by law. This is the case for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether the product is available within your region or within your personal credit score can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about each credit or financial item or product. When you’re ready to or refinance your existing loan, you have various financing options. Each type of auto loan has each of its pros and cons, as well as specific purposes. Some can be used for purchases, while some can only be used when you already have the auto loan. So it’s important to do the necessary research before deciding which is right for your situation and needs. New automobile loans are used to purchase brand-new cars. You can secure financing through the dealer but it’s not mandatory. It is possible to get a better deal by using a traditional lender, credit union or online lender, but may facilitate the process. You generally get a of three to five years. Certain lenders offer loan conditions of . The loan amount as well as the interest rate and repayment period determine your monthly payment Try Bankrate’s to find an estimate. Depending on the financing arrangement it is possible that you will have to pay . Experts in finance recommend that you put at least 20% down, however it’s best to pay only the amount you are able to be able to afford. Used automobile loans A is a type of vehicle loan that allows you to finance the purchase of a used car. They’re offered through auto dealers, traditional banks as well as credit unions, and online banks. Many of the most well-known used car loans are available for , or CPO, vehicles that usually come with an extended warranty. Many lenders also provide used vehicle loans for cars that are not CPO vehicles. Used car loans are typically paid back in monthly installments spread over 3 to 5 years. As with new car loans, the monthly payment is determined by the financing agreement’s terms. Be mindful that most lenders have restrictions regarding the maximum amount of mileage and age of the vehicle which are eligible to be financed. Auto refinance loans permit you to get the new loan to take over your existing one. You can apply for one if you’ve got a loan that has a higher interest rate and want an alternative loan with an interest rate that is lower or a longer term. With a lower rate it is possible to make savings in the long run. A longer-term contract will reduce your monthly payments. But, because of the interest, it won’t lower your overall cost. It is necessary to have 670 or more to get the highest rates. If your credit is less than ideal then you may want to look at other options, such as to repay the loan. Cash-out auto refinance loans A are similar to traditional refinancing. It lets you transform the equity in your car into cash. You’ll be able to replace the current loan by a new one that will include the equity you have borrowed. Typically, the amount of equity you have in your vehicle limits the amount you receive back. The main benefit of a cash-out refinance is the fact that you have more cash at your at your disposal. You could also secure better financing terms, making your monthly payment more affordable. But, you’ll still have to have to pay higher rate of interest, so you’ll pay more throughout the duration of the loan. Private party auto loans A is an loan made specifically for purchasing a car owned by a private party. Banks, and online lenders offer this type of loan. Since the loan can be secured through the vehicle however, there are restrictions regarding the types of cars you are able to purchase. The car must be at least 10 years old younger , and less than 150,000 miles. Buyout of lease loans A is exactly what it’s akin to It’s a type of car loan that allows you to purchase the leased vehicle. You own the vehicle , while the lender lets you continue with the regular monthly payments you have made during the lease. You should know the difference between a dealer buyout and buyback. Buyouts from dealers are offered when you purchase a car for cash, because you purchase the car from the dealership , instead renting it. A buyback occurs when the dealer purchases the vehicle you lease from you before the lease is up. Other auto loan variations The auto loans can also differ in the way interest is calculated, the method by which you receive the loan and if it is loan is secured by collateral. The above loans can be made with simple or precomputed interest, be secured or unsecure and are available through either indirect or direct financing. Simple interest loans vs. precomputed interest loans for auto loans Auto loans can have two types of interest. 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. At the beginning of your loan term, more than your monthly installment goes to interest. The balance flips late in your time. have the loan balance as well as origination fees and interest calculated prior to the start of the loan and divided across the loan duration. Both principal and interest payments are the same every month. If you pay on time for each payment over the whole loan period, there’s no difference between them. However, if you plan to make more or larger payments or make larger payments, a pre-calculated interest loan is not going to make you any money because the interest rate for the entire loan period is already incorporated into the payment amount. Direct auto financing is different from. indirectly auto financing The distinction is to do with how you obtain the loan by working with a lender directly or by working through a dealer. This is when you get auto financing through a bank or . Getting approved or with the lender prior to going to the dealership will give you an edge during negotiations. The amount you receive will depend on the of the loan and the interest rate. This allows you to look for a car and know precisely what you will spend. The dealer checks the details and then completes the transaction. If you want, you can utilize the offer in order to bargain a more favorable rate on financing with the dealer. With , the dealer offers its own financing via its lending partners. The dealer works with you to fill out the auto loan application, and the dealer will forward the application to a lender or lenders. While indirect financing can be advantageous, the dealer could raise the interest rate in order to make sure they profit. Secured against. unsecure auto loans secured car loans require collateral to the lender usually the car’s title. Banks generally offer better rates of interest and greater flexible eligibility requirements for secured loans because of the collateral. are personal loans for the purchase of new or used cars. They are characterized by higher rates of interest and requirements for qualification due to the absence of collateral. To be eligible for an unsecured loan one must have a solid credit score, as well as a loan history that shows a track of regular, timely repayments, along with a stable source of earnings. The bottom line Not each of the auto loans are the same. The option that best suits your financial needs and will depend on whether you’re looking to purchase an used or new car or refinance your current loan to secure more competitive financial terms, or even take out a loan against the equity you own in your car. Before deciding which type or auto loan is most suitable, do your homework to understand what each has to provide. Additionally, you should find the best lenders and get pre-approved to ensure you score a competitive financing offer. Learn more

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Written by This article was generated using automation technology that was then thoroughly edited and checked by an editor from our editorial staff. Edited by Rhys Subitch The article was edited by Auto loans Editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers to take control of their finances with concise, well-researched, and well-organized details that cut otherwise complicated topics into digestible pieces.

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