Finding the financing you need to purchase a new car can be challenging, depending on your credit rating and financial history. If you are shopping for a car that is not within an affordable range for your budget, the banks may be less inclined to offer you financing options. Dealers can offer financing, but is it the best option for your situation? Here are some things you need to know about getting financing for your car.
Obtaining a loan directly from a bank, credit union, or finance company is known as direct financing. You must agree to the loan terms set forth by the financial institution. This will include making monthly payments of a certain amount for a set period of time, usually several years, while interest accrues. The money you obtain from the bank must be used to pay for the vehicle. Most lenders will also require borrowers to obtain insurance coverage for the vehicle. They will hold the title until the time when you pay off the loan, when the title to the vehicle will be transferred to your name. The nice part about direct financing is that you have the option to shop around and compare interest rates with different lenders until you find one that fits your needs.
Obtaining financing through a dealership is different from getting a loan from a bank, as you need to enter into an agreement with the car dealership directly. You agree to pay the amount of the loan, along with interest on the term of the loan. Some dealers will keep the contract in-house, but many will sell the loan to a bank. The bank will then contact you regarding your loan and payment arrangements. Automatic withdrawal from your bank account is the preferred option for most companies setting up car loans. Dealers normally offer financing for anyone that qualifies. They can get you approved for a loan and you can drive off the lot with your new car in a few hours. Dealers can offer financing after regular bank hours, making it convenient for people to obtain a loan. Dealers can provide multiple financing options for borrowers with bad credit. Some dealers offer low-rate or incentive programs to help car buyers afford new vehicles or cars that are out of their price range.
Car Loan Terms
A car loan term refers to the length of the car loan. Review the term to understand how much your monthly payment will be, and if you can extend the terms to lower the monthly payment. Compare the interest rate and how much you will pay if you change the car loan terms. The lender technically owns the car and can repossess the car at any time if you fail to make your monthly payments, so make sure you’ll be able to make payments on time before you agree to the loan.
Your credit rating is something that plays a major role in your ability to obtain a car loan. Your credit score determines if you are eligible for a car loan, how much you can borrow, and what your interest rate will be. If you have a low credit rating, you will end up paying higher interest rates, and you can struggle to obtain financing from lenders with strict qualifications. If you are able to, it will be well worth your while to improve your credit rating before you try to get financing.
The most important thing you can do is shop around for car loans with different lenders. Comparing different car loan rates from different banks allows you to find one that is offering the best terms for your financial situation.
This article was contributed by Richard Craft, an MBA student who hopes to help you with your finances. He writes this on behalf of Stita Taxi, your number one choice when looking for transportation companies in the Seattle area.