When you secure a car loan from a financial institution, you borrow the money required to purchase the car and pay it back over time with an annual percentage interest rate. Direct lending vs. dealership financing To begin the car loan process, you first need to choose between the type of lender that you want to use. There are usually two options for choosing a lender: direct lending and dealership financing. Direct loans come from a financial institution, such as a bank or credit union, and can be secured prior to visiting a dealership for a vehicle purchase. Dealership financing can be secured after you’ve arrived at the dealership and negotiated a vehicle purchase. Auto loans that you obtain from dealerships usually come from the captive lending department associated with the automaker of the vehicle you’re purchasing, but dealerships can also help you find rates from third-party institutions with which they partner. It’s advantageous to shop around and get preapproved for a loan prior to arriving at the dealership. This gives you leverage when negotiating financing terms, so the dealership may match or beat the terms that you obtained from the direct lender to secure your financing business. Car loan application process When filling out a car loan application, you’ll need to provide some personal information, such as your name, address, employment and financial history so that the lender can assess your ability to repay the loan. Once you’ve been approved, you’ll usually have options for the loan term. The length that you choose can impact the interest rate, so it’s important to calculate how much you’ll be paying in interest over time. After you’ve chosen the terms of your loan, you’ll then be able to calculate your monthly payment. This number will include an amount toward the principal loan and an amount toward interest, and it’s the minimum that you’ll be required to pay each month for the length of your loan.