Basic Information about Auto Loans

When a vehicle is purchased with a loan, the lending company pays for most or the entire vehicle up front and the buyer agrees to pay back the money over time. The amount of money the buyer borrows is referred to as the "principal." The amount paid by the buyer up front is called the "down payment" and can vary from 0% to 20% of the purchase price of the vehicle.

The payback period for an auto loan is typically up to five years, although some newer vehicles are being sold with longer-term loans. The financial institution will charge "interest" for the use of their money. Interest rates vary depending on a number of factors such as credit rating and where the borrower lives.

A car loan, like any loan depends on five things. Your ability to pay back the car loan, length of employment, time at residence, credit history and the value of the item you are purchasing.