Car Loan Basics

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Car Loans – The Basics

A car loan is a type of personal loan in which a lender loans the funds needed to buy a car. In exchange, the borrower agrees to repay the lender the loan amount with interest, typically in monthly payments, until the loan is fully paid off.


Principal is calculated as the total price of the car, plus dealer fees, plus lender fees, plus any additional funds you borrow or additional options you select in the application process.

Interest Rate

The interest rate is the percentage that is charged by the lender for borrowing money. The rate is dependent on several factors including the lenders prime rate, borrower's credit score, vehicle make and model.


The term is the period of time in which the loan needs to be repaid. The longer the term, the lower the payment tends to be. However, longer terms (while being more affordable) also cause you to pay out more interest during the life of the loan.