Definition
A loan to buy a car that is secured by the vehicle, so the lender can repossess it if you do not pay.
What it means
An auto loan is an installment loan from a bank, credit union, the carmaker's finance company or a lender arranged by the dealer. The car is collateral. Rates depend on your credit, the loan term, whether the car is new or used and the lender. Longer terms, such as 72 or 84 months, lower the monthly payment but raise total interest and can leave you owing more than the car is worth. The CFPB suggests getting preapproved before visiting a dealer, so you can compare dealer financing and focus on the total price, not just the monthly payment. Optional add-ons such as service contracts can be negotiated or declined. For 2025 through 2028, some interest on loans for new personal-use vehicles assembled in the U.S. may be deductible.
Example
A $30,000 car loan at 7% costs about $718 a month for 48 months ($4,483 interest) or about $511 a month for 72 months ($6,826 interest).
Illustrative numbers only. Your situation will differ.