Traditional Auto Loans
These loans use your car as collateral. If you ever have trouble making payments, the lender can take back the car, but the good news is that these loans usually come with lower interest rates—helping you save money in the long run.
Car Balloon Loans
With this option, you enjoy smaller monthly payments, but there’s a big payment at the end. When you reach that point, you can pay it off, trade it in, or sell it to cover the balance.
Business Vehicle Loans
Financing for vehicles used for businesses, including loans and lease financing, to take advantage of business tax provisions.
Traditional Auto Loan Pros
- Usually, lower interest rates
- Lots of lenders to choose from
- Can be a good fit if your credit isn’t perfect
Traditional Auto Loan Cons
- Your car can be repossessed if you fall behind
- Usually requires a deposit
- Some vehicles (like older cars) may not qualify
Unsecured Loan Option
These loans aren’t tied to your car as collateral. Instead, the lender looks at your credit and finances. Rates areusually higher, but you can get the loan before you pick a car—great for special vehicles or if you want extra flexibility.
Also, you may not be subject to the same comprehensive/collision insurance coverage requirements that come with a secured loan. If you default on the loan, your car won’t be repossessed, but the debt could be sent to a debt collector, which could severely harm your credit score. Unsecured auto loans are also a good option if you’re buying a classic or collector car that won’t qualify for traditional financing.
Unsecured Loan Pros
- No need to use your car as collateral
- Based on your credit, not the car
- Often, more flexible with how you use the money
Unsecured Loan Cons
- Can be a bit harder to qualify for
- Usually comes with higher interest rates
- Often shorter repayment periods
Direct vs. Indirect Auto Loans: What’s the Difference?
Direct Auto Loans
When you get a loan directly from a bank, credit union, or online lender, you’re in the driver’s seat. You get to see the terms yourself and compare different offers, all before you even set foot in a dealership.
The interest rates you’re offered will depend on your credit score and payment history. Checking with lenders before visiting the dealership lets you compare and see who gives you the best deal!
Direct Auto Loan Pros
- Usually, lower interest rates
- Local lenders can provide better service
- Can be a good fit if your credit isn’t perfect
Direct Auto Loan Cons
- Can be a slow process
- Buyer manages loan process themselves
- Some vehicles (like older cars) may not qualify
Indirect Auto Loans
Many dealerships can set up financing for you right there—no need to visit a bank first. The dealer will send your info to different lenders (sometimes even the same ones you could contact yourself). This can be super convenient, but remember, dealers sometimes add extra fees or increase your rate. Don’t be afraid to ask for the best possible offer before signing anything!
Indirect Auto Loan Pros
- One application gives you access to several offers
- Dealers sometimes offer special deals or incentives
- Paperwork is handled for you—less hassle!
Indirect Auto Loan Cons
- Dealers can add a dealer markup to the interest rate
- You might not see the absolute best deal available
- The lender chosen may not always be your top choice
Preapproved Auto Loans
When you’re getting serious about buying, preapproval is your next step. This process uses a hard credit check, so it’s a bit more in-depth and can impact your credit score. You’ll likely need to share more financial info, but in return, you get a firmer offer—so you know what you can spend and can negotiate with confidence.
Prepapproved Auto Loan Pros
- The APR you see is likely what you’ll get
- You can negotiate with a solid offer in hand
- Shows sellers you’re ready and able to buy
Preapproved Auto Loan Cons
- You’ll need to provide more detailed financial info
- A hard credit check can lower your credit score a bit
- Even with preapproval, final approval isn’t a sure thing