A personal auto loan is a retail loan that allows a consumer to purchase a vehicle via installment payments by making use of the credit they have established as reported by lenders to the major credit bureaus (Experian, Transunion and Equifax). A personal auto loan normally ranges from two years (24 months) to six years (72 months) in length, but there are some loans shorter and some longer.
Historically, a down payment of 20% was considered typical for an auto loan. More recently, $0 down options have become common, although some buyers may have to place a down payment of some size in order to secure credit approval. A larger down payment may also result in a lower interest rate. Banks will normally finance 100% of the MSRP of a new vehicle or 100% of the retail value of a pre-owned vehicle.
A personal auto loan is a great way to build personal credit history, and loans are available to borrowers in a variety of credit positions. While low or no-interest loans backed by manufacturers are reserved for those with great credit histories, many lenders offer great terms and rates to those with good credit histories, and other lenders specialize in financing for those with poor credit histories—even those with recently discharged bankruptcies, slow pays and the like.
A personal auto loan is a form of secured credit, so if payments are not made in a timely manner, you may be assessed late fees, or your vehicle could even ben repossessed. Because a personal auto loan is generally for a smaller amount than a mortgage, an auto loan can be a good stepping stone to a mortgage or a larger auto or small business loan.