Important Parts of an Auto Loan

Receiving a Auto Loan

The process of receiving an auto loan depends on whether your lender is a bank, an online lender, or a dealership. At a bank or online lender, a one-time payment is usually deposited into your bank account. You can then use the funds to purchase the vehicle from the dealership. You receive the vehicle and need to start making your car payments.

Auto loans have a set repayment schedule depending on the term you choose for your auto loan. If you choose a shorter loan term, your monthly payments will be higher, and if you extend your loan term, your monthly payments will be lower (although you will pay more interest throughout the term of the loan). To keep your credit in good standing, you'll want to make your car payments on time.

These payments are usually taken from your bank account by way of a pre-authorization. If you have extra money (such as a tax refund, pay raise, inheritance, or bonus from work), you can usually make additional payments on top of your regular/minimum car payment. This can shorten the term of your car loan and thus save you money on interest payments.

Payments on an auto loan are usually fixed (remain the same) for the life of the loan. When you make a car payment, similar to a mortgage, a portion of it goes toward the interest payment and another portion toward the principal. Payments on an auto loan are front-loaded and paid through amortization. Therefore, you will pay the most interest at the beginning of the loan.