Types of Auto Loans – Why & How to Get One

There are many types of auto loans out there. But, which auto loan type is right for you?

Read through this quick guide to learn about several types of auto loans and how you can secure a low interest rate.

After you learn about different types of auto loans, enter your ZIP code in the free comparison tool above to compare multiple lenders in your area.

How do I get different types of auto loans?

You can shop for auto loans through multiple lenders, such as banks, credit unions, and finance companies.

Most lenders have a credit score and proof of income requirements. This varies for each company.

Here are the requirements to fill out a car loan application:

• Must be 18 years or older (varies by state)
• Social Security number
• Driver’s license
• Meet the minimum credit score requirement
• Proof of income
• Address
• Proof of residency

If you’re approved for the loan, you’ll receive the money in your bank account. Sometimes, a lender may cut you a check for the cost of the vehicle.

Why should I shop for different types of auto loans?

Shopping around for loans makes it easier to find affordable types of auto loans. In other words, you’re shopping for loans with a low APR.

If you have good credit, your chances of securing a low interest rate are much better than those with bad credit.

Each loan does something different. In addition, some borrowers may not meet specific requirements, so exploring various auto loans can give you several options.

If you can’t get an auto loan, look around for a personal loan with no credit check. But, be prepared for higher interest rates.

What are the four main types of auto loans?

When you shop for an auto loan, you’ll see various types of car loans available to you. Here are four auto loan types you can find from banks, credit unions, and finance companies.

• Secured auto loan
• Unsecured auto loan
• Simple interest auto loan
• Precomputed auto loan

Each loan type is slightly different from the others. One of the main differences is the annual percentage rate (APR). Continue reading to learn more.

What’s the difference between a secured auto loan and an unsecured auto loan?

A secured car loan allows you to borrow money only when you put something up for collateral (usually the vehicle you want to buy).

Unsecured car loans have interest rates as high as 113.62%.

Meanwhile, an unsecured car loan does not require collateral, but it comes with higher interest rates.

Comparing Simple Interest Auto Loans vs. Precomputed Interest Auto Loans

Simple interest car loans give you the flexibility to pay against the principal balance of your loan, allowing you to pay off the loan early.

However, precomputed interest car loans have scheduled payments, and paying extra won’t affect the total balance due.

Other Types of Auto Loans

Expand your search and look for special car loan types. Here’s a list of car loans that may be a better fit for you.

• Lease buyout loan
• New and used car auto loan
• Title loan
• Private party loan
• Military auto loan
• Pre-approved auto loan
• Buy-here-pay-here loan (in-house financing)

Explore each option to ensure that you get what you need. And always keep an eye out for APR specials.

What type of credit is an auto loan?

A car loan is listed as installment credit. You borrow a set amount, and the monthly payment is based on the interest charges you agreed to at the start of the loan.

You’ll need to present some form of collateral if you want to establish installment credit, which you do anyway when you want a secured auto loan from a lender.

Comparing Direct Auto Financing vs. Indirect Auto Financing

Direct auto financing is when you go to a bank, credit union, or finance company and receive a car loan. After you purchase a car with the loan, you’ll finance your car with the lender.

Indirect auto financing is when the dealer finds a lender for you. The dealership acts as a middle man for your loan. But, you may see an extra percentage point on your interest rate.

Why should I use an auto loan calculator?

Auto loan calculators give you a general idea of how much your monthly payment will be when you get an auto loan.

If you type in “auto loan calculator” or “car loan calculator” into the Google search bar, the results will show you a calculator that estimates your loan’s monthly payment.

However, your monthly payment varies for each company. In addition to the lender, your loan’s interest rate depends on several factors, including your credit score.

How do I choose the right type of auto loan?

Before you get a car loan, look for the lowest interest rate possible. The right auto loan fits your situation perfectly, and you’ll have less anxiety about making payments.

To get access to the right type of auto loan, you should compare the best lenders. Continue reading to learn more.

The Best Lenders for Various Types of Auto Loans

Are you looking for a suitable lender online? If so, you should start with the best lenders. Here are some lenders that might interest you.

The lowest APR is 1.99%. However, you need to have good credit to access it. According to the Federal Trade Commission (FTC), lenders give lower interest rates to people with good credit because they are low-risk borrowers.

Advantages and Disadvantage of Auto Loans

Let’s look at the advantages of car loans.

• Secured auto loan – Lower finance charge and loan cost
• Unsecured auto loan – No limits on how you use the loan money
• Simple interest auto loan – You can pay on the total balance and lower your interest rate if you pay off the loan early
• Precomputed interest auto loan – Your interest rate won’t change as you make scheduled payments

Here are a few disadvantages of car loans.

• Secured auto loan – The lender can repossess your car if you haven’t made payments
• Unsecured auto loan – Your interest rates are higher than average
• Simple interest auto loan – Most of your early payments go toward interest instead of the principal
• Precomputed interest auto loan – It takes longer to pay off the loan

Did we miss anything? Compare types of car loans to see which one works best for you.

Types of Auto Loans: What’s the bottom line?

Looking at different auto loans will help you find the best option. When you have good credit, your options expand even further. Look for auto loans with low interest rates.

Now that you know about various types of auto loans, use our free online quote tool below to compare multiple lenders near you.