Car loans allow buyers to slowly pay off their automotive purchases, dividing what would otherwise be a hefty sum into smaller monthly payments. 

With the price of a vehicle often running in the many thousands of dollars, many buyers choose to finance their purchase to make it a more feasible transaction.

The total price of an auto loan depends on several factors like down payment, interest rate, APR, and term length. 

A down payment lessens your loan amount while also reducing your monthly payments during the loan term. 

The annual percentage rate, or APR, consists of the lender's interest rate and additional charges. The APR is a percentage applied to the principal amount you borrow as you make your payments.

Usually, borrowers with excellent credit scores qualify for lower interest rates, while those with bad credit scores are subject to higher interest rates. 

When someone has poor credit and needs assistance obtaining an auto loan, a co-signer like a trusted friend or family member can vouch for them. 

Auto loans usually last 24-84 months. Longer loans lower your monthly payments and help you buy a car that might have been outside of your initial budget. 

Buying a used car offers several advantages over purchasing a new one. You have the opportunity to save thousands of dollars while still driving away in a nearly new vehicle. 

Whether your car's totaled and you need a new one quickly, or you just want something different, where can you go for not only a great deal but also a quality used vehicle? Shift offers best-in-class service contracts at a fair price without sales pressure. You get the great price and value of a used car with the bumper-to-bumper protection of a new car. You can buy any of Shift's cars directly online from the comfort of your home, know it has no hidden issues (from our 150-point inspection) and get a fair, up-front price.

Before you sign on the dotted line to finance, you have to fill out a loan application.

When you apply for a loan, lenders perform a credit check, which in turn produces a "hard inquiry" on your credit report.

While a hard inquiry reduces your credit score by around five to 10 points, the reduction only lasts for about a year. 

But if you're simultaneously seeking financing for more than one major purchase – like a house and a car – multiple hard inquiries could negatively affect your eligibility for loans.

For that reason, it's wise to purchase a car or a house in different years, so you end up with the best credit score possible and qualify for ideal loan terms. 

However, major credit bureaus like Transunion or Experian realize that consumers are sometimes in the market for a car and a house. Because of that, they treat multiple inquiries within 14-45 days as a single one. 

In contrast, a "soft inquiry" on your credit report does not affect your creditworthiness. A "soft inquiry" is usually done when you research your credit score independently, or a lender does so for marketing purposes.

Multiple factors go into deciding your FICO score, such as the average age of your various accounts, the length of your credit history, and your borrowing and spending habits.

For example, taking out a new car loan or signing up for a credit card lowers the average age of your accounts. But depending on whether you've held different accounts for a longer or shorter period, the change in your score could be small or more significant. 

One area that remains unaffected by an auto loan is your credit utilization. Credit utilization is the amount of revolving debt you carry month to month compared to your credit limits. Your credit card balance is an example of this. 

Owning a car brings many additional expenses like fuel, maintenance, and insurance premiums. Saving money where you can on automotive-related costs keeps extra cash in your bank account for essential obligations. One way to do this is to secure an advantageous car loan. But applying for and finding one can be a hassle. Shift works with a network of trusted lenders who compete for your business, so you get the best deal on financing. And applying for financing with Shift is quick and easy, with no cost or obligation.

Auto loans also offer you the opportunity to increase your credit rating by making timely loan payments and proving your reliability to major credit bureaus. 

The temporary reductions in your credit score due to a hard inquiry will dissipate with time. But as you continue making timely payments on your loan, the potential for your credit rating to improve continually increases. 

That happens by diversifying your credit mix, which comprises 10 percent of your FICO score. Your credit mix shows your ability to manage multiple credit types, and lenders consider it when applying for an auto loan.

Three types of loans make up your credit mix: installment loans, revolving loans, and open accounts. 

Installment loans (like car loans, student loans, and personal loans) let borrowers repay their debt in equal installments over a set period. 

Revolving accounts (like credit cards and home equity lines of credit) allow you to borrow money up to a specific limit and make monthly payments toward the balance. 

Open accounts are lines of credit without a limit and require repayment in full each month. 

Responsibly paying back your loans regardless of the type demonstrates your aptitude at handling a mix of credit types.

Does buying a car with a loan hurt your credit? In short, slightly, but only temporarily, if you make timely payments. Remember, when you apply for an auto loan, a hard inquiry is performed on your credit that lowers your FICO score by five to 10 points.

Do car payments build credit? Yes, they can, but only if you make timely payments consistently. Reliably repaying your auto loan demonstrates your trustworthiness to credit bureaus and can raise your credit score over time. Late payments, however, will only hurt your credit.

When you're in the market for a new-to-you car, you probably want to sell your old one. But if you prefer the ease and convenience of trading in, who can you trust to give you fair value? At Shift, you can get a fair offer, better than at the dealership, driven by powerful machine learning algorithms and tons of data. With Shift there is no need to spend the extra time waxing and washing the car. A little dirt will not affect the quote, and we fully detail the cars ourselves anyway before listing them for sale.