Since buying a car is such a big expenditure, financing is a popular option. In other words, you can make the cost of buying a car more manageable by taking out a loan for the car and repaying it in monthly installments. If it’s your first time buying a car, financing is an equally great option for you! Let’s take a look at how you can get started.
Key Takeaways
- When you finance a car, you take out a loan for the overall cost of the car, including taxes and fees, and repay it over time.
- The advantages of financing include being able to drive home in the vehicle you want right away and being able to own it outright after the terms of your loan are met!
- To get the most affordable loan, take good care of your credit score, make a bigger down payment, and shop around for the best interest rate.
What exactly does financing a vehicle mean for me?
To finance a car, you need to take out a loan. You can take out a loan from a bank, credit union, lending institution, or even the very dealership where you purchase your car. Typically, you put a down payment on your loan, both to show the lender that you’re responsible enough to save a down payment and to reduce the overall amount that you need to finance.
When you repay the loan, you’ll be paying back the amount you borrowed, plus interest. Your interest rate will vary according to your credit score, which is determined by your payment history. The higher your credit score, the lower your interest rate!
To repay your loan, you’ll make a payment each month until the term of your loan ends. Typically, your auto loan term will last between 36 to 72 months. A shorter loan term typically means a higher monthly payment and less interest paid overall. A longer loan term means a lower monthly payment and more interest paid overall.
What are the advantages of financing?
Financing is popular because it allows people to purchase the car they want right away, and to make the payments later. If you had to save $30,000 for a new car, it might be quite a while until you got one!
The other reason to finance is that you’ll get to eventually own your car. Once you’ve made your last payment, you’ll own the car outright. From there, you can decide whether you want to keep it, payment-free, for a few more years, or trade it in for a new one.
How can I get a more affordable loan?
Your credit score is a big factor in getting a more affordable loan. The higher your credit score, the more lenders will trust you to repay your loan. And that means they’ll offer you lower interest rates on your loan!
Another way to lower your monthly payments is to simply make a bigger down payment. Simply put, if you save as much as possible for a big down payment, you can lower the total amount you need to finance.
It’s also a good idea to shop around for a loan! If you check out different kinds of lenders, including banks and credit unions, you may find special rates, such as for military members.
You can also get pre-approved for your loan, so you already know how much you can spend before you even show up at the dealership. On the other hand, it’s often just as easy to get an auto loan from the same dealership where you found the perfect car!