Car loan

What It Means

A car loan is money borrowed from a bank, credit unionCredit unionA not-for-profit financial cooperative owned by its members, offering accounts and loans to people within the field of membership its charter sets. See more or car dealer to buy a vehicle, repaid in fixed monthly payments over a set number of months. The car secures the loan, so if the payments stop, the lender can take it back. What it costs depends on the amount borrowed, the annual percentage rate (APR) and the term, and a longer term trades a smaller payment for more interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more.

How People Say It

• "We financed the car through the credit union."
• "What's your car payment now?"
• "Six more payments and the truck is ours."

The Breakdown

Worked example. Experian's Q2 2026 figures put the average new car loan at $43,610 and the average new car APR at 6.35%. Here's that loan at three terms, rounded to the cent:

What the result means. Going from 48 to 72 months cuts the payment by about $301 and adds about $3,061 of interest. Experian put the average new car payment at $765 in Q2 2026, and $542 for used cars, where buyers borrowed $27,852 on average at an average APR of 11.19%. Those used figures show why the rate matters as much as the price: a smaller loan at a higher rate costs more per dollar borrowed.

What moves your number. Your credit, whether the car is new or used, the down paymentDown paymentThe share of a home's price you pay upfront in cash when you buy it; the mortgage covers the rest. See more and trade-in, and the term. The CFPB suggests comparing offers by the APR, the term and the total you'd repay along with the monthly payment.

Good to Know

For 2025 through 2028, the IRS says you can deduct up to $1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,000 a year of interest on a loan for a new vehicle for personal use, whose final assembly took place in the United States, if the loan was taken out after December 31, 2024 and is secured by the vehicle. Used vehicles don't qualify, and the deduction phases out when modified adjusted gross incomeGross incomeThe full amount you earn before taxes and other deductions come out. For federal taxes, it's all income you receive unless a law exempts it. See more is over $100,000 ($200,000 for joint filers); you can take it whether or not you itemize. Ask a tax professional how it applies to your return. The CFPB also notes that GAP insurance, which covers the difference between what you owe and what your insurer pays if the car is totaled or stolen, is optional and worth shopping around for.

Related Terms and Categories

• Loan term

  How long you have to repay a loan, usually stated in months for a car loan and in years for a mortgage.

• Amortization

  Paying off a loan through regular scheduled payments, each split between interest and principal, until the balance reaches zero at the end of the term.

• Negative equity

  Owing more on a loan than the thing it paid for is worth, most often a car loan balance that's higher than the car's value.

• Down payment

  The share of a home's price you pay upfront in cash when you buy it; the mortgage covers the rest.

• Refinancing

  Replacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment.

Debt and credit