While wealthy car buyers may have the luxury of paying for a new car out of pocket, the average person isn’t so fortunate. For most people, the only way to finance a new car is through a car loan – a complex financial instrument that requires much planning and forethought before buying the new car.

The Car Loan Defined

At its most basic definition, a car loan is a personal loan used to finance an auto. It is a secured loan in that the auto is used as collateral for the loan. The car loan can take the form of either an indirect or a direct loan depending on how the car buyer chooses to enter into the loan agreement.

An indirect car loan means that the car dealership acts as an intermediary between the bank and the car buyer. A direct car loan means that a bank loans money directly to the car buyer outside the purview of the car dealership.