Due to the high cost of vehicles today; financing a vehicle is the only way that the majority of people can afford a car. Financing a vehicle is simply acquiring a car loan so an individual can purchase a new or used vehicle. This way the individual doesn't have to pay for the vehicle all up front. By financing a vehicle the owner can make payments over time.
The buyer must repay the lender by making payments monthly that include principal and interest until the car is paid in full. Getting the financing for a vehicle is almost as important as looking for the vehicle itself.
Next to a mortgage, financing a vehicle is the second largest purchase any of us will make. There are several options open for financing a car: you can get a car loan through your bank, or financed through the automotive maker, financing through a credit union, or paying for your car with a home equity or personal line of credit.
To better understand the system of financing a vehicle, we are going to talk about the many financing alternatives offered by lenders.
Dealer Financing
Financing through a local dealer is fairly common, and can be a good deal. By financing through the dealership a dealer will offer the financing and will sell the loan or pass it on to a secondary lender. Car manufacturers will also offer financing as they have a vested interest in selling cars.
Dealers usually have access to a wide range of lenders and will know what lender to send your loan to for approval. It is often more convenient to deal with the dealer as it is one-stop shopping experience. No need to travel to your bank or credit union.
Direct Lending
Direct lending is another avenue to acquire a loan for your car. Direct lending is where a consumer will get a loan from their credit union, bank or other financial institution. In this process the buyer will enter into an agreement with the lender and the auto dealer. Payments are usually made every month with terms ranging from 12 to 84 months.
Financing Terms
Understanding the language of financing is much easier than you might think. Here are some of the key terms.
Down Payment: This relates to the amount of money you are putting down on your vehicle.
Amount Financed: This is the amount of money that you are getting financed from a lender. It is also referred to as the credit amount the lender is giving you.
APR: This stands for the Annual Percentage Rate and represents the amount of interest you are paying. This is represented in a percentage form.
Finance Charge: This is the amount of money that you are paying to the lender to use their money.
