In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing. The duration of the loan period is considerably shorter — often corresponding to the useful life of the car. There are two types of auto loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

Advantages:

You don’t have to pay the complete sum straightaway. This helps in allowing you to pay in monthly installments. As the times pass your income will increase, which will certainly lessen the burden which is upon your shoulders as the monthly installments are the same. Taking auto loans allow you to save your money for any future mishap. An auto loan helps you to go beyond your budget range while buying a car. You can go for a car of your choice with the help of a suitable auto loan.

Disadvantages:

When we take an auto loan, it undoubtedly gives us the benefit to pay the sum in monthly installments, but it also makes us lose out on a lot of money, which is paid as interest. An auto loan also restricts you from going abroad or disposing off your car. The approval of the financier is required for the same. At some point if you feel that you can make a prepayment to clear your loan, you have to face the prepayment charges which might result in losing out even more money.