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How do car loans work?

When you take out a car loan against a vehicle purchase, you’ll usually set up an agreement to pay back the cost of the car to the seller over a period of time. The car loan will have a set term or length of time, and you will be required to make monthly payments until the loan is paid off. At the end of the term, you will own the car outright.

However, some buyers may be going through a dealership or private seller that needs the total amount outright or offers a high-interest rate on the car, making it difficult to afford. That’s why some vehicle owners will take out a loan to cover the costs of the car in full, and instead pay back their lender over time.

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