You don’t need to be rich to get your hands on a new (or used) set of wheels. But you do need to know a bit about your payment options. The transaction usually requires some form of auto financing, which involves taking out a loan that you must repay over time. This approach means you agree to certain terms for paying back the amount with interest, possible fees, and within a set timeframe.
Unless you plan to pay upfront in cash – which a small percentage of consumers do each year – you’ll have two main financing options: direct lending or dealership financing.
Who Are the Auto Financing Lenders?
There are several different options for lenders:
- Banks
- Finance companies
- Credit unions
- Online lenders
- Car dealerships that offer “in-house” financing
As you get started, you’ll want an idea of what your monthly payments will be. The amount is determined not just by your loan amount, but also by the annual percentage rate (APR). Reach out to a few different places to ask about their rates. That will give you a more complete picture of what you’ll end up paying. During this stage, you can also begin comparing rates. You may find getting a loan through a dealership is more expensive due to higher interest rates.
Getting Preapproved
While it’s not necessary, you can get a head start by getting preapproved for a loan through a bank or other lender. To do so, the lender will need to review your credit report and other financial information. Going through this process can give you a better idea about what kind of deal you can get and might even help you negotiate a better price. Once you’re preapproved you’ll be in a better position to judge whether you’re getting a good offer in person.
Direct Lending
Direct lending means the buyer borrows the money from a finance company or other lender. Taking this route lets you shop around for the financial group with the best loans and terms for your needs. Some customers get a direct loan through their bank because they already have a relationship with the lender and can keep their bills in one place. However, keep in mind that while a bank might appear to offer a better rate, they won’t have incentive programs that dealerships can offer to cut down their costs.
While you shop around, ask dealers for written out-the-door prices on cars you’re interested in, as well. That way you can compare deals and financing terms in the comfort of your own home.
Dealership Financing
Applying for financing through the dealership is a slightly different process. By cutting out the need for a third-party lender, this process can be easier than securing a loan through a bank.
It simply requires signing the contract offered by the dealer. The dealer typically will sell the contract to the bank, finance company, or credit union that will be collecting your payments.
Options Improve When You Research Your Choices
Too many drivers manage their finances based on their monthly payments, with little understanding of the total they’ll pay in the long run. Easy credit and long repayment terms don’t necessarily mean you’re getting a good deal. From 2016 to 2019, new-car loans reportedly went up 10 percent to an average of $551 per month. Shopping around and comparing loan offers can save you a lot of money in interest and fees.
3 Steps for Better Financing Options:
- Check to see if you qualify for special programs. Dealers sometimes offer low-rate, manufacturer-sponsored, or incentive programs. Find out if they’re limited to certain cars or bring special requirements that will affect the terms of your contract.
- Find out your credit rating beforehand. Special programs that can lower the rate may require a strong credit rating. If you’re working on improving your credit score, consider this an extra incentive.
- Explore multiple financing options. The dealer may be able to offer a range of financing choices through different lenders. Pay close attention to any differences between their offerings.
Finally, when you’re doing the math, don’t forget to figure in your monthly auto insurance payments, as well as maintenance and other car expenses.
Once you find your dream car, reach out to Amigo Insurance for the best auto insurance coverage at competitive rates. Get a free quote here any time, or contact us at 773-847-9000, where our agents are ready to help.