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What do I need to know about car loans?

I'm thinking about buying a car, but I've never had a loan before. What do I need to know about car loans before I apply?

avatar
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
A car loan may seem intimidating if you’re a
first-time buyer
. We’ve got you covered with a basic overview.
You take out a car loan to get money to purchase a car. You’ll pay the amount of the loan back to the lender over time plus
interest
, so the lender can make a profit.
In a car loan, your car is used as collateral, meaning that if you default (fail to make payments), the lender gets to
take possession of the car
.
To get a car loan, you’ll need to show you have a
decent credit score
 and steady income. The better these numbers are, the better interest rate you can land.
It’s best to shop around with multiple banks, online lenders, and credit unions to find the best rates. If your projected interest rates are in the double digits, try to hold off on the loan until your credit score improves.
Before you sign on to a loan, make sure you
properly review your loan agreement
 and ask the lender any questions you might have.
Finally, you’ll be required to purchase
full-coverage car insurance
 for the duration of your loan.
Since this is one of the most expensive car insurance policies, it’s best to shop around for quotes and make sure you’re not overpaying. Use
Jerry
 to compare dozens of competitive quotes and find the right policy hassle-free.
MORE:
Should you get a 72 month car loan?
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View full answer 
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