An auto loan is a type of financing that allows individuals to borrow money to purchase a vehicle. The borrower agrees to repay the loan amount, plus interest, over a specified period, usually through monthly payments. The vehicle itself often serves as collateral, meaning the lender can repossess it if the borrower fails to make payments. These loans can be obtained from various sources, including banks, credit unions, and car dealerships. Interest rates and terms can vary based on factors like the borrower's credit score and the loan amount. Understanding the terms of an auto loan is essential for making informed financial decisions.