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What is a car loan?
I'm looking into getting my first car, and I've been saving up. One of my friends asked me why I don't just get a car loan. What is a car loan?
Lauren Smith · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
A
car loan
is money you borrow from a lender to purchase a vehicle that you can’t afford to buy in cash at this time. The borrower is typically charged interest and fees on top of the loan principal, which is the amount you borrowed to pay for the car.There are several types of lenders, including:
- Local banks
- National banks
- Online lenders
- Dealerships
Before handing over a loan, the lender will look at your credit score to determine how financially responsible you are. Typically, applicants with better credit scores will qualify for loans with better interest rates and loan terms, meaning they will essentially be charged less for borrowing the money.
Loans are paid back in monthly installments (aka monthly payments) for a set amount of time called the loan term. The lender will typically provide options with regard to loan terms—for example, 60 months or 72 months. Of course, the longer the loan term length, the more the borrower will end up paying in interest.
If you want to get a car loan, you could use the money you’ve been saving as a
down payment
and take out a loan for the remaining amount needed to purchase the car you want.No matter when the time comes to buy a car, remember that you’ll need car insurance. If you want to save money on car insurance, the
Jerry
app is a good place to start. A licensed broker, Jerry does all the hard work of finding cheap quotes from the top name-brand insurance companies and buying new car insurance. The average Jerry user saves $879 a year!View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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