When shopping around for a car there is probably one question that will linger over you: how are you going to be able to afford a new vehicle? Of course, looking for a car that is within your budget is the first step to getting the car that is right for you. However, you need to look at more than just the price tag that is on the car’s windshield. In fact, financing will probably determine how much you spend on a car in the long run and how much you can afford to spend on it in the short term. While financing can sound scary, it is actually incredibly useful to have financing to help you get the car you want and need. Below we will look at a few basics of car financing and what the negatives and positives of it are.
So what is car financing?
Car or auto financing is incredibly simple. It is just a loan, provided by either a financial institution or the dealership, to help you pay for a car. While the basic concept of car financing is simple, there are various types of financing available, including financing through a lender, through a dealership, and car refinancing. We will look at each type of car refinancing option below to give you a good idea of which may be best for you.
Direct lender financing
Car financing is often provided directly by a lender, such as a bank, credit union, or financial services company. Typically you would shop around for a direct car loan before you had actually made a deal to purchase a specific car. Direct lending has quite a few advantages. For one, you can easily compare what different lenders are offering and what their minimum requirements are. Some lenders, for example, will only finance a vehicle that is below a maximum threshold in terms of mileage or age. Others specify either a minimum or a maximum amount that they are willing to lend. Most credible financial institutions will perform a credit check on you to determine how much they are willing to lend. If your credit rating isn’t great then you may have trouble getting approved for a loan from some lenders–and the ones that do approve you may be offering prohibitively high-interest rates! The advantage of having to get approved for a loan before you actually purchase a vehicle, however, is that you will have a price point in mind when shopping around for a car. After all, if a bank is willing to lend you $25,000 for a new vehicle, at least that way you know not to be looking at vehicles that cost $40,000.
Going through the dealership
Alternatively, you can choose to finance your vehicle directly through the dealership. Getting a loan through the dealership means you won’t be able to compare the terms that the dealership is offering versus what another lender would offer, but it does come with other advantages that may make up for that limitation. For one, most dealerships offer a number of different financing options because they work with multiple lenders. They can also typically offer you financing that is more suitable for your needs and many lenders are more willing to finance an individual who has a poor credit history. Getting financing directly from the lender is also a lot more convenient. Finally, a dealership may be able to offer you a special financing promotion through the manufacturer that can make buying a particular car much cheaper.
Finally, even if you are stuck with a bad car loan, you can use car refinancing to improve your situation. With car refinancing, you shop around for a new car loan from a financial institution and use that new loan to pay off the old loan. The idea behind auto refinancing, like refinancing a mortgage, is to help you lower your interest and monthly payments so that your car loan becomes more manageable. As with a direct loan, you are free to shop around, such as on this site, and compare different refinancing options.
A car loan is often the best way to get the car you need without having to worry about breaking the bank. Although many people get nervous about car financing, the truth is that if you know how financing works then you will have the tools you need to compare your options and find the financing package that works best for your situation.