An auto loan is a secured installment loan used to purchase a vehicle. The car serves as collateral — if you stop paying, the lender can repossess it. You repay the loan in fixed monthly installments over a set term, typically 24 to 84 months.
An auto loan is a type of secured installment credit specifically for purchasing a new or used vehicle. The vehicle itself serves as collateral — the lender holds a lien on the title until you pay off the loan. Once the final payment is made, the lien is released and the title transfers fully to you.
Your interest rate depends primarily on your credit score, the loan term, whether the vehicle is new or used, and the lender type. New vehicles typically qualify for lower rates than used ones. Longer terms (72 or 84 months) lower the monthly payment but increase total interest paid. Shorter terms cost more per month but less overall. The CFPB's auto loan resources walk through what to compare when shopping lenders.
Direct lending means you secure a loan from a bank, credit union, or online lender before visiting the dealership. You arrive with a pre-approved rate and use it as a negotiating baseline. Dealer financing means the dealership arranges financing through its network of lenders — convenient, but the dealer may mark up the rate above what the lender actually offered. The CFPB recommends shopping for financing before visiting a dealer so you have a comparison point.
Because the vehicle is collateral, the lender can repossess it if you miss payments — often without a court order, depending on state law. Repossession is reported to the credit bureaus and can significantly damage your credit score. The FTC's guidance on vehicle repossession describes your rights if a lender moves to repossess.