Auto loans, car loans, vehicle financing — it’s all the same. If you need money to purchase a new automobile, then there’s a good chance you’ll be looking around at the different borrowing opportunities available to you.
The advent of the car loan came about because vehicles are expensive pieces of machinery. So expensive, in fact, that most people cannot afford to buy one with cash. Instead, lenders began offering money to prospective car owners so that people of all ages, from any location, and of any economic background could afford their very own automobile.
Most people in need of an auto loan approach their personal bank for financing. These large institutions tend to lend liberally to the public, but sometimes their credit score requirements are a bit steep. In the event that a prospective vehicle owner does not qualify at a bank for the borrowing they need, there are always dealerships.
Dealership financing refers to the practice of picking up an auto loan at a car dealership. The nice part about dealership financing is that it turns a car shopping destination into a one-stop-shop for everything you’re looking for; you find your vehicle, then you negotiate a means to pay for that vehicle, and you drive home happy.
The downside, however, is that dealerships sometimes offer higher interest rates since they are not the lenders themselves. Instead they’re simply middle men. However, that negative attribute is a plus for some since these “middle men” will often work with bad credit borrowers to ensure that a sale is made.
All auto loans, regardless of their source, typically come with terms (durations) of two to five years. These terms are often expressed in months, so a 36-month car loan is a three year agreement, while a 60-month is a five year agreement.
Unlike mortgages, the interest rates on auto loans tend to vary substantially from borrower to borrower. Car loan interest rates vary wildly depending on an applicant’s credit score, down payment, outstanding debts, and presence of a co-signer (or lack thereof). That doesn’t mean there aren’t averages though.
As a general baseline, rates on a 60-month new car averaged right around 4.20 percent in early 2013. Rates on a 36-month used car averaged near 5 percent. Use this information to gauge where you believe your interest rate might be when applying for financing.