How Are Mortgage and Auto Loans Similar?


Mortgages and auto loans are similar in many ways, such as being secured loans, requiring a credit check, having fixed or variable interest rates, and having a set repayment schedule. But mortgages have a more in-depth approval process and longer approval time than auto loans. Auto loan lenders may be more willing to approve loans for individuals with a less-than-perfect credit rating but able to pay more interest.

A new car and home may be two of your most significant purchases. Paying for them is a critical financial commitment. Because both are large purchases, the processes for getting mortgages and auto loans are very similar. Good credit will increase your chances of approval for a mortgage and auto loan.

Despite the similarities, mortgages have more in-depth approval processes than auto loans. Learn more about how mortgages and auto loans are similar and what you need to know to get both.

What is a mortgage loan?

Mortgage loans are used to purchase homes or borrow money against a home’s value from a lender like a bank. Mortgages are paid off in monthly installments over an agreed-upon time, such as 15 or 30 years. If you fail to make your monthly mortgage payments, a lender can force the sale of your home through foreclosure to cover your debt. Although a mortgage lender will not “repossess” your home as an auto lender might repossess a vehicle (unless you have a chattel mortgage), you as a borrower may experience the loss of property as much the same either way.

When you apply for a mortgage, Elias Pedersen, Senior Mortgage Broker and cofounder of, recommends reducing your loan repayments beforehand. Lenders will review any outgoing cash, which includes car loans.

When mortgage companies review your application, they will want to see your assets to see how you would afford a down payment and make your monthly payment.

Mortgage loans are secured amortized loans. Typically, your mortgage payments will each go toward both the lender’s interest and the loan amount (also known as the principal). The more you pay off the balance, the less you’ll pay in interest because the interest is recalculated based on what’s left on the loan. Mortgage loans typically have a fixed interest rate, so your payments stay the same for the entire loan. The interest you pay for your mortgage is also tax-deductible.

When you make your payments on time, a mortgage loan can boost your credit score because it shows you’re a reliable borrower.

What is an auto loan?

When you’re in the market for a new car, you can pay with cash or get an auto loan. Auto loans allow you to borrow money from a lender to purchase a car. Depending on where you get your loan, it may be either a simple interest amortizing loan or precomputed interest loan. Like mortgages, auto loans are secured loans that you pay off in monthly installments for an agreed-upon time, such as three to six years.

The lender can repossess your car if you cannot pay your loan. Unlike mortgages, payments for your auto loans are not tax-deductible. When you make your payments on time for your auto loans, it can boost your credit score.

Researching auto loans can take time and effort. Our guide on shopping for auto loans can help you discover what you should consider when picking out the best deal and comparing options.

Similarities between mortgage and auto loans

Because they are the most significant financial commitments a person can make, you may go through similar processes for getting mortgages and auto loans.

Secured loan

Mortgages and auto loans are secured because the assets, the house and the car, act as collateral. If you don’t pay either loan, your debt obligation can be met using the property, either through repossession by the lender (auto loan, chattel mortgage) or via foreclosure (home mortgage).

Credit check

Lenders will review your credit history and score during the approval process for each loan. Your credit can affect your interest rate and the amount you’re qualified to borrow. Lenders will examine your credit history more closely when you apply for a mortgage.

Fixed or variable interest rates and interest payments

Borrowers pay interest on mortgages and auto loans for the duration of the loan. Depending on the loan terms, they can have a fixed or variable rate. Fixed rates stay the same for the entire loan, but variable rates change based on the market.

Pro tip

Mortgages and car loans typically (but not always) have abiding fixed interest rates for the duration of the loan. Even though the interest rates for both loans may be fixed, it’s important to tackle your debt strategically. Read our article about determining whether to pay your mortgage or auto loan first to make sure you prioritize your payments wisely.

Predetermined loan repayment schedule

You would pay each in monthly installments for a predetermined amount of time. You would make payments until you pay off the loans.


To get a mortgage or auto loan, you must provide paperwork to convince lenders to give you the loan and demonstrate that you will pay it off on time. Examples of paperwork you would provide include recent pay stubs, tax returns, and bank account statements. You would show proof of auto insurance for an auto loan application and proof of homeowners insurance for a mortgage.

Differences between mortgage and auto loans

While there are many similarities between mortgages and auto loans, the two have distinct differences.

Consequences of credit issues

If lenders see red flags in your credit report, it will affect your chances of getting approved for either type of loan. If you have many dings on your credit, you’ll find it more challenging to win approval for a mortgage than an auto loan. Since it’s less money to loan, lenders may be more willing to approve you for an auto loan, but with higher interest rates and poorer terms.

Risk tolerance

Car industry lenders are willing to take more risks on people who may have credit issues to sell more cars. They may charge higher interest rates to protect themselves.

Mortgage companies are more risk-averse because they are lending more money. Any credit dings will jeopardize your chance of getting approved.

Approval time

The approval process takes longer for a mortgage than for an auto loan. Lenders will review your credit reports from Experian, Equifax, and TransUnion. Mortgage lenders will conduct an in-depth analysis of your credit reports to look for indicators that you could pose a high risk of not making your payments. This process could take 30–45 days.

It’s a faster process for an auto loan because lenders will likely review only one of your credit reports. If your credit is good, you could be approved for a loan the same day you purchase your car.


Are car interest rates the same as mortgage rates?

Car interest rates are not the same as mortgage rates. Usually, car interest rates are higher than mortgage rates.

As a rule, home values increase over time. Car values, with rare exceptions, decrease. If you fail to make payments, your bank can repossess your car or foreclose on your home. Your home has more value for the lender than your car. Because your car is worth less relative to your loan, lenders want to recoup more of the potential loss ahead of time. Higher interest lets them do this. Since mortgage lenders are much less likely to lose money if you default, they don’t need to charge as much interest to make the risk worthwhile.

Is it easier to get a mortgage or a car loan?

Typically, it is easier to get a car loan than a mortgage loan. The approval process for a mortgage takes longer than for an auto loan. If you have a good credit history, you can get an auto loan quickly, whereas a home loan approval process can take up to a month or more.

What is the difference between a car loan and, say, a personal loan?

Car loans are secured loans that use the car as collateral. Lenders can repossess your car if you can’t make your monthly payment. These typically have lower rates because there is less risk for the lender.

Regular (unsecured) loans like personal loans can be used for any expense, including car purchases. If you use these alternative loans, you might pay higher interest rates because they can be secured or unsecured.

Are car loans amortized like mortgages?

A car loan may be amortized like a mortgage. Car loans can be either simple interest amortized loans or precomputed interest loans. With simple interest, making larger-than-scheduled payments can reduce the interest you pay each month by reducing your loan principal. With precomputed interest, your monthly interest would not change because it is computed and fixed based on your original loan amount.

Financial institutions such as banks and credit unions tend to use simple interest amortized car loans. Buy-here-pay-here lenders commonly offer precomputed interest loans. You will only know which loan you have by asking the lender and reading your loan documents.

Pro tip

“If you think there’s a possibility you may want to pre-pay your loan in full or pay more than what you owe to pay your loan off earlier, a loan with precomputed interest may not make the most financial sense for you.” — Consumer Financial Protection Bureau
Need help finding reasonable interest rates for auto loans? Review our 2023 guide for finding the best auto loan.

Which statement is true of both mortgages and auto loans?

Mortgages and auto loans are very similar, so multiple statements are true of both. Both are secured loans, have interest payments, may have fixed or variable interest rates, need a credit check, and have a set repayment schedule.

Are mortgage rates related to interest rates?

Interest rates can affect mortgage rates. Interest rates increase when the economy is good, resulting in higher mortgage rates. When the economy declines, interest rates decrease, and mortgage rates become more affordable to borrowers. Mortgage lenders will assess your risk level. You will likely qualify for a mortgage if your qualifying factors are good.

Strategically plan your financial future

Because the processes are similar, you may consider applying for a mortgage and auto loan simultaneously. While it’s possible to pay both, Allison Montgomery, founder of Buy My House, recommends considering your financial situation and ability to manage your monthly payments. She says,

If you’re ready to invest in either a mortgage, an auto loan, or both, use SuperMoney’s comparison tools to find the mortgage and auto loans that work best for you.
View Article Sources
  1. Background articles from Bank of America, Forbes, HSH, Quicken Loans, rateGenius Auto Refinance, and Rocket Mortgage, and from auto insurance, business, financing, and mortgage lender sites — Various
  2. Should You Pay Off Your Car Before Buying a House? — U.S. News & World Report
  3. What Are the Different Kinds of Debt? — Equifax
  4. What Are the Different Ways to Buy or Finance a Car or Vehicle? — Consumer Financial Protection Bureau
  5. What Is a Mortgage? — Consumer Financial Protection Bureau
  6. What’s the difference between a simple interest rate and precomputed interest in an auto loan contract? — Consumer Financial Protection Burea
    In addition to these external sources, readers may find multiple links to helpful SuperMoney pages in the article above.