Everything You Need to Know About Auto Loans

September 18, 2025

Buying a car is an exciting moment but for most people it also means taking out an auto loan. Understanding how auto loans work can help you save money, reduce stress, and feel confident about your purchase. In this blog, we’ll go over everything you need to know about auto loans.

What Is an Auto Loan?

Before we dive in, let’s go over what an auto loan is. An auto loan is money borrowed from a financial institution to purchase a vehicle. Instead of paying for the car in full upfront, you make monthly payments until the loan is paid off.

Key Terms to Understand

• Principal: The amount you borrow to pay the car.
• Interest Rate (APR): The percentage charged by the lender for borrowing money. Lower rates mean lower costs over time.
• Loan Term: The length of time you have to repay the loan. You can always pay it off before the loan term ends.
• Down Payment: Money you pay upfront, which lowers the amount you need to borrow.
• Trade-In Value: The amount your current car is worth if you use it toward your new purchase.

How to Qualify for an Auto Loan

Lenders look at several factors when deciding if you qualify and what interest rate you’ll receive:

• Credit Score: A higher score usually means a lower rate.
• Income & Employment: Proof that you can afford the payments.
• Debt-to-Income Ratio: How much debt you already have compared to income.
• Down Payment: Putting money down can improve your chances of approval.

Read our blog to learn more about these factors.

Steps to Getting an Auto Loan

1. Check Your Credit: Your credit score will play a big role in deciding what interest rate you will receive. Read our blog to gain a better understanding of your credit score.
2. Set Your Budget: Decide what you can realistically afford.
3. Get Pre-Approved: Know how much you can afford before you go car shopping.
4. Shop for Your Car: Compare different vehicles.
5. Finalize the Loan: Decide on the car you want and negotiate with the dealer.

To learn more about the loan approval process, read our blog.

Buying New vs Used

Though used cars are typically cheaper, auto loan rates are usually higher. This is an important factor to consider when deciding which route you’d like to take. To compare auto loan rates for new and used, view our current list of rates.

Benefits of Credit Union Auto Loans

When it comes to financing a vehicle, choosing a credit union over other lenders can make a big difference. Here are some of the key benefits of financing with a credit union:

• Lower Interest Rates: Since credit unions are not-for-profit, they typically offer lower interest rates.
• Flexible Terms: Credit unions work with you to find a payment plan that fits your budget.
• Personalized Service: You’ll get to work with local people who know you and your personal needs.
• Fewer Hidden Fees: Credit unions typically keep fees at a minimum.
• Opportunities for Refinancing: You can refinance with a credit union even if you have a loan elsewhere.

What Happens if You Miss Payments?

Missing payments can hurt your credit score and may lead to repossession of your car. If you’re struggling, contact your lender right away.

Tips for Saving Money on Your Auto Loan

• Make a larger down payment to borrow less
• Choose a shorter loan term to save on interest. If you can, pay more than the monthly minimum to pay off your loan sooner.
• Improve your credit score before applying.
• Refinance later if rates drop or your credit improves.
• Avoid extras you don’t need at the dealership.