Auto Loans

In the market for a new car, motorcycle, truck, or other vehicle? Congratulations! Just like purchasing a home, buying a vehicle can be an exciting time for you and your family. It’s also a big purchase, which is why you should take your time and do your research.

Apart from what color you’d like or what features are important to you, there are other points to consider. You’ll want to ask yourself what the primary use of the vehicle will be, like driving to work, long commutes, travelling, etc.

Here are some questions you’ll want to ask yourself:

  • What size should the car be?
  • Is gas mileage important?
  • Should you buy new or used?
  • Should I buy electric?
  • Do I want a sports car, truck, SUV, or sedan?

All of this information will help determine the cost of buying the vehicle. For example, Sport Utility Vehicles (SUVs) are more expensive than sedans. And buying a new car will be more expensive than buying used.

Once you’ve settled on a vehicle that perfectly fits your personal needs, it’s time to look at your car financing options. This is where an auto loan comes in.

What is An Auto Loan and How it Works

Similar to a personal loan, an auto loan is money borrowed from a bank, credit union, or other lender to finance or pay for your car. It comes with an interest rate, a monthly payment, and fees if you don’t pay the money back.

Where they differ is that an auto loan is designed specifically for the purchase of a vehicle and it is secured by the vehicle itself. Secured means that the loan is backed against something in case you’re not able to pay the lender their money back. Having a loan secured by something reduces the risk for the lender.

So, if you default on the loan, the vehicle will be repossessed. While backing your auto loan with your car sounds a bit risky, the benefit to you is a lower interest rate.

Additionally, it’s much easier to qualify for an auto loan than a personal loan because it’s secured. Unlike a personal loan, you can get an auto loan with low to no credit, and most lenders will only require proof of income.

Should I Get One?

When financing a vehicle, your first thought may be, should I lease or should I buy? Each option has its pros and cons. Let’s take a look:

Benefits of Leasing

  • Lower down payment
  • Often lower monthly payments
  • You have the option of buying the car or upgrading to a new one after the lease term is up
  • Repairs are under warranty
  • You don’t have to worry about selling your car later

Benefits of Buying

  • You get to own it
  • There’s no mileage limit
  • You can make any customizations to your vehicle

The general rule of thumb when deciding on leasing or buying is how long you plan on having your car. If you’re the type of person who likes to get a new car every few years, then leasing is for you. If you’d like to hold on to your car for 5 years or more, buying is a much better option since your monthly payments will eventually end and your car can typically last you for longer.

Purchasing your car is a big investment decision, so make sure to treat it that way. If you use your car to commute to work and it helps you earn your money, then you may want to purchase your car. Leasing may be cheaper in the short term but by buying the car you make the return on your investment longer than the lease.

What Do I Need?

In order to qualify for an auto loan you’ll typically need proof of:

  • Income (like a pay stub)
  • Insurance (a copy of your policy)
  • Identity (a driver’s license or state ID).

There may be other factors involved when getting approved for your loan, such as the type of vehicle you’re looking to purchase, whether or not you have a trade-in or downpayment, and the length of the loan term.

When comparing lenders and trying to find the best interest rates, be sure to have this information ready and available.

If you’re going to a dealership to buy your car, make sure to look at financing options outside of the dealer and not just what they’ll offer you on the spot. Small changes in your interest rate can amount to a huge difference in what you ultimately have to pay back. Looking at different financing options will be a little extra work but could save you lots of money.


Just like any other loan type, an auto loan can have fees (other than the interest rate). One common fee is an origination fee, which is a payment made for processing the loan, and often comes baked into the loan amount.

A prepayment fee is a fee some lenders will charge if you try to pay off your loan early. This is because the lender will be missing out on all that interest you promised them, which is ultimately how they make their money.

Late fees are another type of fee most lenders will charge if you’re late on your monthly payment.

Keep in mind that not all lenders will charge fees, but it’s important you understand what they are so you can avoid them and account for them when comparing multiple lenders.


If you fall behind on your car payments, after 30 days you might get a letter or a call from your lender trying to collect. After 90 days of being late, the lender could repossess the vehicle and your loan will default. When this happens, the lender will sell your vehicle, but if they can’t sell it for the full loan amount, you’ll still be on the hook to pay the difference. The lender may also choose to sell your debt to a collection agency who will then come after you to settle the debt.

It’s also important to note that having a loan default will negatively impact your credit score, making it more difficult to take out another loan in the future.

A common solution to catching up on your payments is to request a loan extension or repayment plan. This will take the payments you missed and add them to the end of your loan. You’ll pay more in interest in the long-run, but it will relieve you from having to immediately pay back the payments you missed and facing the repossession of your vehicle.


While taking out debt should never be taken lightly, an auto loan can be a worthwhile investment and a great path to car ownership. It can even have a positive impact on your credit score if repaid on time.

At Unidos, we understand loans are a necessity of life for most people. We want you to always be well-informed so you can make the best decision for you and your family when shopping for a vehicle.

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