Common loan terms for auto loans


An auto loan is a type of secured loan used to finance the purchase of a car. The car serves as collateral for the loan, which means if you default on your payments, the lender can repossess your car.

Most auto loans are for 36 or 60 months, but you may be able to find a loan with a shorter or longer term. The length of your loan term will affect both your monthly payment and the total amount of interest you pay over the life of the loan.

The terms of an auto loan can vary depending on the lender, but there are some common terms you’re likely to see:

-Principal: This is the amount of money you borrowed, not including interest or fees.
-Interest: This is the percentage of your loan balance that you’ll need to pay in addition to your principal. Interest is how lenders make money on loans, so it’s important to compare rates before you take out a loan.
-Term: This is the length of time you have to repay your loan, usually expressed in months. For example, a 36-month auto loan means you have three years to repay your debt.
-Monthly payment: This is the amount you’ll need to pay each month to cover both your principal and interest. Your monthly payment will be lower if you choose a longer term for your loan, but you’ll end up paying more in interest over time.
-Prepayment penalty: Some lenders charge a fee if you pay off your loan early. This is called a prepayment penalty, and it’s important to avoid loans with this type of fee.

Down Payment

A down payment is the amount of money that you put towards the purchase of your car. The down payment is the first step towards financing your car and it is typically paid when you sign the sales contract.

Your down payment may be paid in cash, by trade-in, or through a combination of the two. The amount of your down payment will affect your monthly payment, the length of your loan, and the amount of interest you will pay over the life of your loan.

Trade-In Value

If you have a car you want to sell to the dealer as part of the purchase price of your new car, the trade-in value is the amount of money the dealer will give you for your car. The dealer will then sell your car at wholesale price.


Annual Percentage Rate (APR) is the yearly cost of borrowing money, including interest and fees. It’s expressed as a percentage of the total loan amount. For example, if you have an auto loan for $20,000 at 5% APR, you’ll owe $1,000 in interest and fees over the life of the loan.


Pre-payment is paying all or part of your loan before the end of the scheduled term. Many lenders will allow you to make a pre-payment without penalty. Some lenders may even offer a discount for pre-paying, so be sure to ask. Pre-paying can save you money in interest charges over the life of the loan.