Auto Financing 101: The Basics

Auto Financing 101: The Basics


You have your eye on a new car and think that you can swing the monthly payments. You may be considering trading in your current car and/or you may be able to kick in some money as down payment in a bid to lower your cost of financing.

Certainly, it is better to pay cash for a car if you can, but if you don’t have the money and would like a new car, then coming up with a payment plan you can handle is one option.

But, before you make that purchase there are some things you can do to make sure that you get the best financing deal possible. These steps comprise the basics of automotive financing, what every person seeking a car loan should know.

Get Pre-qualified — Just as you would when you shop for a home, getting pre-qualified for an auto loan makes sense. You’ll know how much car you can afford, the interest rate that you’ll pay and what your monthly payments will be. With that information you can shop for a car within your budget.

Your Credit — The higher your credit score, the lower your auto financing rate should be. But be careful about those fees sitting in the small print: pre-payment penalties if you pay off loan early, loan origination fee or no discount offered if you set up an automatic payment through your bank.

Fund Access — Your financial institution may give you “instant approval” for a loan, but then you learn that those funds won’t be available for three to five business days. Trouble is, the sales program being touted by your dealership ends in two days which means you’ll miss the bargain. Unless you get same day access to those funds, that loan deal may prove to be no deal at all.

Negotiate Wisely — With car loan financing in hand, you concentrate on negotiating the price of the car you want and reduce that amount further by taking the rebate. You can decrease the amount to be financed by applying the rebate to your down payment, lowering your costs by that amount plus interest.

As always, shop around for a car loan by securing loan estimates from three or four lenders. Shopping online makes sense but talk with your banker or credit union lender too. This person may have a loan for you at a rate lower than their published rate.

Adv. — Shopping for a new car? Visit for deals on new car loans.


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Categories: Autos Express

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".