The Basics of New Car Financing
You’ve found the perfect new car for you! Now it’s time to set things in motion and make it yours. This often involves some type of financing, whether it be through the dealership or through another entity like a bank, credit union or financing company. Financing is another way of saying a car loan, and this will ultimately determine your monthly payment.
What Are the Basics of Financing a Car?
There are several things that go into financing a car purchase, so it’s important to understand what goes into the total cost.
Cost of the vehicle
This one is obvious, right? You’ll be getting a loan for the cost of your new vehicle. However, this isn’t the only cost included in the loan.
Length of loan
The average length of a car loan, or the time in which you have to pay it off, is between 36 and 84 months. These aren’t the only lengths available, but they are the most common. This will affect your monthly payment, and also the total end cost of your vehicle.
Any additional items
Once you’ve negotiated the price of your vehicle, you may be interested in adding on items like an extended warranty, a service contract or security system. These will get rolled up into the total cost of your loan, so you might want to know not only the base price of these additions, but how much each item will cost you over the length of your loan.
Taxes
Don’t forget that you need to factor in sales tax to your purchase. Each state will have different tax laws that will apply.
APR
This stands for annual percentage rate and is the interest rate of the loan you are getting. This can also include other fees as well. This is a good place to compare and contrast financing options as the interest rate can greatly affect the total cost. This can also be dependent on your credit score, so you might consider checking your credit before starting the financing process.
Down payment
This is the money that you’ll put up front to get the car and start the loan process. Sometimes dealerships will offer zero down options, but if you have money to put down it can be a good idea because it can help lower your monthly payment and the total cost of the loan.
Trade in
Another way to lower the cost of your loan is if you have a vehicle to trade in. This basically means you give the dealership your old vehicle and they give you money for it toward your new car purchase.
Special offers or programs
Dealerships may be able to extend special offers or financing programs to buyers depending on a variety of factors. These can also lower the cost so it’s a good idea to ask if any are available to make sure you’re getting the best deal.
Learn About Your Financing Options
Financing is an important part of the car purchase process. Contact any of our dealerships to learn more about their financing options to figure out a loan structure that works best for you.