What type of loan is used for purchasing a vehicle and requires repayment with interest?

An auto loan specifically refers to a type of loan that is designated for purchasing a vehicle, such as a car, truck, or motorcycle. This loan allows individuals to finance their vehicle purchase by borrowing a set amount of money from a lender, which they agree to repay over time, typically in monthly installments. The terms usually include interest, which is the cost of borrowing the money and is added to the principal amount borrowed.

The nature of an auto loan includes collateral—meaning the vehicle itself often serves as security for the loan. If the borrower fails to make the required payments, the lender has the right to repossess the vehicle. This type of loan is tailored for the specific purpose of vehicle financing, making it distinct from loans taken for other purposes such as business expansion, purchasing a home, or funding education. Each of those other loan types serves very different financial needs and structures.