Auto loans allow people who do not have enough money in the bank to buy a car outright to make bite-size, monthly payments on it. You can get loans on both new cars and used cars, though new cars will often be available with lower interest and with longer terms. The reason that the interest rate and terms on auto loans vary on new and used cars is because the greater the value of the item and the greater it's resale value, the more money the bank who loans you the money can recoup should you ever choose to not pay your loan and they have to take back the car.
You can get a bank to give you an auto loan prior to going to a car dealership or looking for a used car that a private owner is selling. This will often give you the lowest interest rate for your auto loan as well as the best terms, though this is not always the case. In situations in which the market may be in flux, car dealerships may be able to give you a better deal on your auto loan. As such, be sure and check both options before you commit to an auto loan.
Another thing to be aware of in the hunt for good auto loans is advertising that may confuse you about auto loans! Many car dealerships glibly advertise auto loans that have 0% interest for 5 Years…or will give you a special rebate if you finance through them. What they often fail to mention is that extremely low interest rates are only given to people with the best possible credit imaginable, and even they will find that should they ever run late on a payment for their car, their low, low interest on their auto loan will immediately be revoked and replaced by an interest rate starting commonly around 20%. The rebates are often more of a gimmick, than an actual savings, because they bury in the fine print that facts that you must sign up for a financing with a tremendously high interest in order to be eligible for the rebate, and, even if you opt for this high interest auto loan, you will still have to pay all the taxes on the original purchase price and it may take as long as six months to a year to receive your rebate check. Remember, if it was really a savings, an auto manufacturer would simply discount the price of a car…not make you jump through a bunch of hoops to get some of your money reimbursed later.
It all comes down to making sure that you read all the fine print in both the advertising for dealerships as well as in the auto loans themselves. If there is something you don't understand in one of the contracts you're being asked to sign, make sure you ask about it. Better to feel slightly embarrassed by asking a simple question, than finding out your auto loan's interest has doubled later on because you failed to understand one of the conditions.
