How Does Car Financing Work?

It’s not uncommon for new car buyers in Woodway to contact us with one key question: “What is financing a car?” If you’re just starting to learn how car finance works, the process can seem daunting — so we hope this guide can demystify the car-buying process for first-time buyers! 

The first step is choosing a lender. Most drivers chose to apply for a loan through the dealership, a bank, or local Temple-area credit union. You can also apply to multiple institutions and then choose the best offer. Lenders will use the following factors to determine your eligibility for a loan, as well as how low of an interest rate to offer you:

• Credit Score
• Loan Amount
• Age of the Vehicle
• Debt-to-Income Ratio
• Repayment Term / Length of Loan

What does it mean to finance a car with no credit? No credit or bad credit car loans are possible, but be aware that your interest rate will be significantly higher. Give yourself a few months to boost your credit before you apply, or find a cosigner with good credit.

Find the Financing Plan That’s Right for You

What is financing a car going to cost you each month? There’s a lot to consider, so we recommend calculating what you can afford in auto payments each month before you apply. Here are a few points to keep in mind as you plan your budget:

• Low or no credit? A bigger down payment may help convince lenders to offer better interest rates. Calculate your max downpayment before you apply, and value your trade-in with Allen Samuels Dodge Chrysler Jeep Ram FIAT to offset your new vehicle cost with the value of your current car.
• Include the cost of gas, insurance, and maintenance as you write up your budget. While it’s true that higher monthly payments will save you money on interest, you don’t want your car payments to be so high that any unexpected setback puts you at risk of missing a payment — and damaging your credit.
• If you apply to multiple financial institutions, submit all applications within a 2-week period. Otherwise, your credit score could take a hit before you finish all of your loan applications.
• What is financing a car going to cost compared to leasing? Monthly lease payments are lower than finance payments, but you have less freedom to customize your car and may be subject to mileage limits.
• Get the best possible price and interest rates! It’s often possible to negotiate with your lender before loan terms are finalized.