What Is A Car Loan?

November 4th, 2021 by

Handshake Over Car Loan Paperwork

Buying the car of your dreams is a big purchase, and the chances are that you may require applying for a loan. The auto loan debt in the U.S. hit a record $1.42 trillion in 2021, which was nearly double what Americans spent ten years earlier. The figures indicate that many drivers require car financing, despite the process being overwhelming and confusing to many. At North Coast Auto Mall in Cleveland, Ohio, we handle all the details of auto financing to offer you a simplified process that is quick and convenient.

What Is a Car Loan?

A car loan, also known as an automobile or auto loan, is a sum of money a consumer borrows from an institution or a dealership to purchase a car. When applying for the loan, the borrower agrees to pay the lender the total amount loaned out plus interest, calculated annually with monthly payments.

The loan’s security is the car the borrower intends to buy, meaning that the vehicle serves as the collateral. The lender can seize the car if the borrower defaults on making payments. Car loans are easy to obtain since they only require a brief credit history check and often offer on-the-spot financing solutions.

How Is a Car Loan Different From Other Loans?

Auto loans comprise nearly 10% of all household debt in the U.S. and are the third-largest debt category, after mortgages at $9.86 trillion and student loans at $1.55 trillion.

You secure a car loan for the car you intend to purchase, while the security for other loans is anything you have of value. However, the lender does not give the borrower the car title until the final repayment, similar to a mortgage. After securing a personal loan, you can use the money at your discretion, but a car loan is only available when looking to purchase a vehicle, and you cannot use it for any other purpose.

When it comes to the interest rates, other types of loans, such as personal loans, are likely to attract higher rates, mainly when servicing unsecured loans. On the other hand, car loans usually have a lower and flexible interest rate.

Your credit history does not play a huge role in a car loan, and your application can be approved even with poor credit scores, whereas for most other loans, there are challenging lending requirements, so applicants with low scores may not qualify.

Personal loans are only available at financial institutions, but you can visit a bank or reach out to our finance center in Cleveland, Ohio, for a car loan.

How To Start Applying for a Car Loan

At North Coast Auto Mall, we make the process of applying for a car loan more straightforward. Our Getting Pre-Approved in Seconds program offers you access to Cleveland’s most prominent and understanding lenders.

To start applying for a car loan on our platform, complete a secured form that collects personal information, including your name, SSN/ITN, date of birth, and contact information like your phone, email, and address. After you read and agree to our privacy policy, press the Accept/Submit button.

Our application saves time because when you visit our dealership, we already have all your information, and you will have a copy of our financing terms.

What Documents Do You Need?

A lender or dealership looks for proof that you are a reasonable credit risk and will not default on the car loan repayments. By bringing the appropriate documents, you highly increase the chance of securing a car loan and directly impacting the interest rates.

Some of the most common documents you need for a car loan include:

  • Proof of identity
  • Proof of income
  • Credit and banking history
  • Proof of residence
  • Vehicle information
  • Current vehicle registration, if you want to trade
  • Proof of insurance
  • Method of down payment

Depending on your financial situation or whether you want to trade-in, you may require additional documentation. Contact our financial experts for a complete list of specific documents you might need in Cleveland when choosing in-house financing versus bank loans.

How Car Loans Work Overall

When you apply for a car loan, you receive the cash in a lump sum, and then you pay it back over the agreed duration plus the interest. The amount of money you receive determines the monthly payments, the period it takes to repay the loan, and the interest rate. Although most people take car loans to buy a car, these loans are also helpful for leasing a vehicle. Expect lower monthly payments when leasing, but you will be required to return the vehicle to our dealership after the agreed period or opt for a lease buyout.

For the most part, car loans work the same way as other types of loans. After you agree to our privacy policy, we continue with the loan application process by:

  • Beginning a credit investigation, including obtaining your consumer credit report.
  • Allowing direct electronic access to your personal information to lenders, financial institutions, or other third parties.
  • Converting and processing your personal information as a credit application.
  • Contacting you through phone, text, or email to obtain other relevant information.

A lower monthly payment on your car loan does not necessarily mean you are saving money because you pay a higher amount for the vehicle over the life of the loan. On the contrary, a longer loan term can dramatically lower the monthly payment, which could also mean higher interest. Before signing any documents, ensure you understand the loan terms and the interest rate you will pay.

Contact North Coast Auto Mall for a Car Loan

Our finance team ensures that prospective car buyers and loan applicants in Cleveland, Ohio, and nearby areas get the best deals. We have a vast inventory of cars, and our team will work with you to find you a suitable model at an affordable price. At North Coast Auto Mall, we are ready to help you secure financing even if you have a bad credit rating or are currently servicing another auto loan. Visit our dealership or contact us today to learn more about our financing program and other services.

Posted in Auto Finances