What is the difference between a car loan and a personal loan?
While a personal loan can be used for nearly anything—even purchasing a car—an auto loan can only buy a vehicle. And because auto loans are securitized against the vehicle itself, they often have lower interest rates than personal loans and are more accessible to people with less than stellar credit scores. Since the lender owns the car until a loan recipient makes their final payment, it’s not difficult for lenders to repossess cars.
What is the average car loan down payment?
According to data from car-buying guide Edmunds, the average car loan down payment in 2019 was 11.7%, well below the 20% recommended by credit-reporting agency Experian. A larger down payment usually means better financing terms and lower monthly payments.
How much do Americans have in auto loan debt?
As of the end of Q4 2021, Americans held $1.46 trillion in auto loan debt according to the New York Federal Reserve Bank’s Quarterly Report on Household Debt and Credit. Auto loans were the third-largest kind of debt after mortgages and student loans. And according to credit-reporting agency TransUnion, average auto loan debt per borrower is $21,210 as of Q4 2021.
What is a closed-end lease?
A closed-end lease is a rental agreement in which the lessee (or renter) is under no obligation to purchase the leased asset at the end of the agreement. In closed-end leases, the lessor takes on the risk that the asset will depreciate. That’s good news for the renter, but these leases often come with stricter terms.
Dealer financing refers to the process of applying for an auto loan through a car dealership. The dealership will collect the information needed for an application and submit it to prospective lenders, who quote the dealership a ‘buy rate.’ The dealership will then negotiate an interest rate with the buyer. The dealership will usually pursue compensation for coordinating the loan by quoting a higher rate than the buy rate. Once the loan is made, the dealership will often sell it to the lender.
The Blue Book, or Kelley Blue Book, is a guidebook that quotes prices for new and used vehicles of various makes and models. The first Blue Book was published in 1926 by Los Angeles car dealer Les Kelley as a resource for professionals in the car industry. It now includes consumer and online editions that outline fair purchase prices based on what others in a prospective buyer’s area have paid for similar cars.
Subprime Auto Loan
A subprime auto loan is a loan offered to borrowers with low credit scores or limited credit history. While there’s no universal definition of “bad credit” that excludes a borrower from prime loans, subprime loans are generally offered to borrowers with FICO scores between 650 and 450. Terms on subprime loans are less favorable than those offered to borrowers with better credit. Interest rates are higher and lenders will often charge prepayment penalties if the borrower decides to pay off their loan early.
A lease balance is the amount of money a lessee has left to pay under the terms of a lease agreement. The lease balance comes into play when either a lessee chooses to terminate the lease early or the leased car is stolen or totaled. In each case, the lessee is expected to pay back the full lease balance. Since cars depreciate quickly, a lease balance can exceed the vehicle’s fair market value, which is all insurance will cover when a car is totaled. Lessees can pay for gap insurance to make up the difference in such an event.
Loans are indirect when the lender does not have a direct relationship with the borrower. This can mean the loan was made with the help of a beneficiary, like a car dealership in the case of auto loans, or the borrower’s debt was purchased on the secondary market. Indirect loans facilitated by an intermediary are often easier to get than direct loans, but they are also more expensive.
A subvented lease is a lease to which a car maker or dealer has applied a subsidy in order to make the vehicle more attractive to renters. Lessees offer subvented leases to attract new customers or move vehicles that are in low demand. Lessees may subsidize a lease with an upfront rebate or by increasing the car’s residual value (i.e., its projected retail value at the end of the lease), thereby reducing monthly payments.
Explore Auto Loans
Edmunds. "How Much Should a Car Down Payment Be?"
Federal Reserve Bank of New York. "Quarterly Report on Household Debt and Credit."