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Getting a Car Loan

Author Jennifer Tucker
March 6, 2023 | 10 Min. Read

If you’re searching for a new set of wheels, you might be wondering, “What should I know before I buy?”

You may have already done your research on car options and found your dream ride. But moving forward with a purchase most likely means getting a loan.

There isn’t a simple way to determine what is the best car loan. When you’re considering buying a vehicle and shopping for an auto loan, you’ll need to take into account your personal financial situation and goals. Understanding how auto loans work will help you determine what makes the most sense for you. We can help by explaining what an auto loan is, how to determine how much car you can afford , and what to expect when you apply for a loan.

An auto loan is a type of financing that can help you buy a car when you don’t have the cash to make such a big purchase. A car loan can be used to fund a new or used vehicle. When you get an auto loan, you borrow money from a lender and agree to pay back the funds over a set period of time with interest and fees.

Auto loans are similar to other types of loans you might be familiar with, like a personal loan or a mortgage. When you take out a car loan, you will pay the lender back in equal monthly installments (referred to as loan payments or monthly payments). Your monthly loan payment will include both principal and interest and the amount will depend on a few factors:

  • The total amount of the loan
  • The interest rate (or APR)
  • The loan term

A car loan calculator can help you determine the cost of a loan and decide what you can afford. Marine Credit Union offers a variety of free budgeting and financial planning tools to help you on your lending journey, including a Car Loan Calculator and a Car Payment Calculator.

Here are the most common terms you’ll likely hear when you’re shopping for a car and applying for an auto loan:

APR is the amount of interest and fees you’ll pay to borrow money to purchase a car, given as a yearly percentage.

Your down payment is the amount you’ll pay upfront toward the cost of your car. It may be cash, the value of your vehicle trade-in, or both.

The loan term is also sometimes called loan duration. This is the length of time you have to pay off your loan.

Your monthly payment is the amount you will owe on your car loan each month. It includes principal, interest, and other fees that might apply.

Principal is the loan amount you’re borrowing, minus any fees, penalties, interest, or other costs associated with your auto loan.

Total cost is the full loan amount—including principal and interest—that you’ll pay over the life of your auto loan.

There are two ways people generally finance a vehicle purchase: direct lending and dealer financing.

Direct lenders include banks, credit unions, and other financial institutions. When you borrow from one of these lenders, you have a chance to comparison shop for the best loan terms and get preapproved for a loan.

Dealer financing is handled by the dealership where you purchase your car. This is a convenient option when you want to shop for a car and an auto loan in one place. Dealers may have relationships with one or multiple lenders, so you may or may not have the opportunity to compare terms.

If you want to lower your monthly payments, refinancing your auto loan could save you money. The way it works is pretty simple: You’ll apply for a new loan the same way you applied for your original car loan. Lenders often make quick decisions on a refinance, and if you’re approved, the new loan will replace your current auto loan. You’ll use the new loan to pay off your original loan, and then begin making payments on the new loan.

You might want to consider refinancing your current auto loan if:

  • Your credit score has increased.
  • Car loan interest rates have decreased.
  • You didn’t shop around for the lowest auto loan rate initially.
  • You feel like your monthly payment is too high.

Whether or not you choose to get a loan to fund a major purchase like a car will depend on your personal financial situation. Financing a car may be a good idea when:

  • You need a vehicle, but you’re unable to pay for it in cash.
  • You’re able to lock in a low interest rate, so you won’t add too much to the overall cost of the car.
  • Your monthly loan payment will be reasonable and won’t add stress to your budget.
  • You’re certain you can make the loan payments on time.

The choice you make to get an auto loan from a bank or a dealership depends on the loan terms available and how they meet your needs in your financial situation.

Aside from getting an auto loan, you can also consider funding the purchase of a car by leasing or paying with cash.

A personal loan is best for financing large, one-time expenses like a home improvement project. An auto loan is used specifically to finance the purchase of a car. You can use a personal loan to finance a new or used car, but it isn’t recommended. An auto loan is a better option that is often easier to qualify for and comes with a lower interest rate. Plus, with an auto loan, the car is used as collateral, which protects your other assets.

A car loan can help you purchase either a new or used vehicle. In some cases, new vehicle loans have lower rates than used car loans. New car loans may also come with special incentives that could reduce your monthly payments. Choosing the car—and the loan—that’s right for you depends on your individual needs.

The qualifications for an auto loan are similar to the qualifications for other types of financing. The general factors that lenders consider when you apply for a car loan include your credit score, debt-to-income ratio, down payment amount, and more.

A simple loan calculator can help you determine the cost of a loan and decide what you can afford. A car loan calculator will compute your monthly payments and total interest based on the purchase price, down payment, interest rate, and the number of monthly payments.

Marine Credit Union offers a variety of free budgeting and financial planning tools to help you on your lending journey, including a Car Loan Calculator and a Car Payment Calculator.

When it comes to financing a car, you have options. The most common ways that people fund the purchase of a new vehicle include:

  • Getting an auto loan.
  • Leasing a car.
  • Paying with cash.

How you choose to pay for or finance your car depends on your goals and your personal financial situation.

The best way to save money on your car loan is to reduce the loan amount. You can reduce the amount you borrow by making a larger down payment, trading in an existing vehicle, or negotiating the price of the car.

Shopping around for the best loan terms—especially a competitive interest rate—is another way to save money on your auto loan. Be aware, however, that the interest rate you’re offered on a car loan often depends on your credit score.

You may also be able to save on your monthly loan payments by extending your loan term. Consider whether it makes more sense in your financial situation to take a longer term with lower monthly payments or a shorter term with higher monthly payments and pay off the loan sooner.

Buying a car can be tricky, especially if it’s your first time owning a vehicle. There are a lot of things to consider when it comes to identifying the right car to meet your needs and the right car loan for your financial situation.

Everyone’s journey to ownership will look a little different, but we’ve boiled the process down to five important steps.

You’ve done your research, understand the requirements, and are ready to buy a car. Now it’s time to search for the right loan and the right lender.

When you’re looking for the best car loan, there are a few important factors to consider, including:

  • The annual percentage rate.
  • The loan term (36, 60, or 72 months).
  • Your monthly payments.

Different goals call for different types of loans. When you’re looking for a car loan, we’ll find the right solution to meet your unique needs.

We don’t think anything should stand in the way of your dreams of ownership. If you’re ready to purchase a car, we’re ready to discover a way to make it possible.


Some lenders have rigid lending guidelines and qualifications that are tough to meet. If you’ve been told “no,” we can help you find the path to “yes.”

All loans subject to Marine’s approval process. Membership eligibility required. Federally insured by NCUA. Equal Housing Lender.