An auto loan is a secured loan used to purchase a vehicle, where the vehicle itself serves as collateral. The loan amount is determined by the purchase price minus your down payment and trade-in value, plus any applicable sales tax. Interest rates depend on your credit score, the loan term, and whether the vehicle is new or used.

Choosing the right loan term is a key decision. A shorter loan term (36 or 48 months) results in higher monthly payments but significantly less total interest paid. A longer term (72 or 84 months) reduces monthly payments but increases total cost and may leave you upside-down on the loan if the vehicle depreciates faster than you pay it off.

A larger down payment reduces your loan amount, lowers your monthly payment, and decreases the total interest you pay over the life of the loan. Most financial experts recommend putting at least 20% down on a new vehicle and 10% on a used vehicle to avoid negative equity and secure better financing terms from your lender.