I know what loans are (you borrow money and pay it back plus interest over a period of time), but I have a few questions about the specifics:

  1. When you are approved for an auto loan and you proceed to get one, does a lump some cash amount (the principal) get added to your checking account?

  2. If you take a loan from your bank, does a new account "tab" also pop up on your dashboard like your credit card tabs?

  3. I know how interest in paid for bonds. How is interest paid for a loan? Let's say you take a $10,000 at 3$ APR for 12 months. Do you pay $833.33 ($10,000/12) of principle + $25 ($10,000 * 0.03/12) every month?

  4. Do you have to post collateral?

  • You may want to reach out to a local bank or credit union and have them walk you through a loan. There may be other "technicalities" you haven't asked about, but which can be surprising if you've never taken out a car loan before. For instance, the lender may require you to have a certain level of insurance on the vehicle. The loan may cover taxes and title or registration fees in addition to the purchase, and the dealer may or may not handle those fees (i.e. getting them to the state motor vehicles entity) for you. Lenders may also try to sell you extra insurance on the loan. And so on... – dwizum Sep 11 at 17:48
  1. The bank would usually give the money to the dealer directly, possibly via a check you give to the dealer as payment. Ask your bank, they can tell you how they do it. It's exceedingly unlikely the money will ever go through your personal account though.
  2. Depends 100% on your bank, you'd have to ask them.
  3. It's paid off however your contract says it's paid off. Usually it'll be like a mortgage—the amortization formula gives you a monthly payment, principal * interest rate goes towards interest, the rest goes towards the principal. If you make an extra principal payment (assuming your loan contract allows for such a thing, rather than just pre-paying future payments), the interest in subsequent months is reduced and you pay off the principal faster.
  4. The car is the collateral. They put a lien on the registration, and if you default they can repossess it. As jamesqf points out, that also means you can't sell the car until the bank signs off on it, which they are unlikely to do unless the loan is paid off (possibly as part of the sale).
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    Re #4, you also can't sell the car without getting the lender to sign off on the title, which they won't do unless the loan is repaid. – jamesqf Sep 11 at 17:12
  • @jamesqf I thought that would be implied by the lien, but you're probably right that it should be explicitly included given the relatively basic level of the question. I've edited it in. – Kevin Sep 11 at 17:23

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