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8 Things to Know About Car Financing

It’s finally happened; You need a new set of wheels, and car financing looks to be the best way forward.

For many, buying a new or used car outright doesn’t make sense. Instead, spreading the cost over a manageable period is a much better option than leaving a sudden gaping hole in your bank account!

But, if you’ve never undertaken car financing, it can be a little confusing knowing how to go about it. So, here we’ll run you through eight things to know about car financing to build up your knowledge of the subject.

Take note of these handy tips, and we’re sure you’ll soon have the confidence to finance that new motor you’ve got your eye on.

Set Your Budget

First and foremost, set yourself a realistic budget that’s really doable. Being unrealistic about what you can afford can be disastrous later on down the road when you can’t make the payments.

That being said, if you have a sensible budget, then you could be well on your way to getting the keys to a brand new vehicle. And an excellent way to find out what you can afford is to use a car loan calculator.

Also, if you find a good car dealer, they can genuinely help you figure out what sort of budget you should aim for. In the end, not all car dealers are out for a quick buck; many just want to do honest business.  

Find the Right Car

Surprisingly, researching vehicles that match criteria is often something that’s not thought about when car financing. Many people just get sold a car by a savvy salesman, and then further down the line, they realize they could have done better.

First, you need to write down some clear factors that you want in your new car. And, these factors might change when you realize some of the fantastic features new cars have these days.

Think about all your practical needs first, safety concerns, and the cost of running the vehicle. As well, children’s car safety should always be a number one priority.

After you consider those things, you can then think about more fun features such as the sound system’s quality and cruise control, for example.

Your Credit Score Helps

If you’re good at paying your bills on time and keeping good credit, you could be entitled to a larger loan and lower rates of interest. So, it’s a good idea to check on your credit score using a reputable credit agency to have a better idea of what you can apply for loan-wise.

Some dealerships also facilitate a free credit score check for their potential customers.

It could even be worth working on your credit score over a few months to bring it up to a level where you’ll get better interest rates when car financing.

But if you can find the right dealership, your credit score might not be an issue at all. And, you’ll be surprised at some of the available competitive rates, even when you have bad credit.

Plus, some dealerships even specialize in helping you get the best rates for a loan, whether you’ve got good or bad credit.

Keep Your Loan Term Short

The shorter your loan term is, the better interest rates you’ll get. 

The key to this is to understand the car’s total price if you were to buy it outright with cash. Then you can compare the loan term amounts to see how much more you’ll be paying overall when paying monthly.

Just ask for the total amount you’ll pay for each monthly payment plan and then subtract the cash buying price to work out how much extra you’ll be paying for the vehicle. 

Any professional dealership out there will make all this clear to you, so you fully understand the process you agree to. 

Down Pay Your Way

Basically, the larger the down payment you provide, the better the deal you’ll get on the car you want. 

Of course, not everyone can afford a sizeable down payment. Yet, it’s worth trying to save a little extra for the down payment, as you’ll feel much better about it in the long run.

Twenty percent of the car’s value is a good level of down payment to aim for. But, only pay what you can afford without it affecting your lifestyle too much – or you might just end up getting a little resentful about the whole process.

For many people, choosing a smaller down payment and paying more over a more extended period isn’t an issue. It means they can carry on living life and their bank account remains healthy.

Consider Gap Insurance

If your car gets totaled at some point in the future, your regular insurance will just pay you the vehicle’s value, which can drop considerably over time. The issue here is that you will still have to pay the original agreed car financing price for your car.

Gap insurance covers the difference between the depreciated value of your car and your agreed financing price.

Independent insurance brokers tend to give you better rates for gap insurance rather than dealers. However, some dealers will really know what they’re talking about and save you a load of effort. 

Get Pre-Approved for Car Financing

If you can walk into a car dealership with a pre-approved offer to finance a vehicle, then the process of getting your new car will be a lot smoother.

Showing this pre-approval to the dealership puts you in a solid position to negotiate with the dealership for a better price. This is because the pre-approval will put you in the same league as a cash buyer. 

Some dealerships can actually help you get your car loan pre-approved! Many well-established dealers have built up strong relationships with multiple lenders, and they can vouch for you in the process of getting pre-approved.

And by opting to go with a dealership that has your back, it should be a stress-free step closer for you to get your new ride.

Dealership Financing

You can sometimes read a little scaremongering about dealership financing, but it isn’t all true; rather a few rotten eggs making it harder for more honest dealers to make a living.

Of course, it’s essential to shop around for the best car financing rates, and that isn’t always the case by going to an independent broker. 

You’ll be surprised at some of the dealer specials and incentives you can encounter these days. For example, some offer zero interest rates and cashback incentives.

A good tip is to check out cars towards the end of summer when dealerships rotate new models. At this time, you could potentially get a great deal on an older model, and your car financing contract might end up not be as pricey as you anticipated.

Frequently Asked Questions

We’ve now run through all eight of our things to know about car financing.

Next up, we’d like to provide you with some frequently asked questions and answers about car financing. In the end, getting a car loan isn’t rocket science, and the easier the process is for you and your wallet, the better!

Does It Take Long To Get Pre-Approved?

Not at all, especially if you choose your approach wisely.

We recommend going with a dealership specializing in getting pre-approvals for customers, regardless of their credit score. They can walk you through the process and give you tips and advice to provide you with a greater chance of getting that pre-approval.

Will My Down Payment Have To Be Big?

The honest answer here is it all depends on your credit history with this one. If you have bad credit, you will have to pay out more money for the down payment to secure your loan. 

Yet, you can try to get the best out of a bad credit situation if you accept solid advice from professionals that can pair you up with the best lender for your specific situation.

What Is Getting Pre-Qualified?

It’s important to understand the difference between getting pre-approved and pre-qualified; they’re not the same.

You should see pre-qualification as an estimate of what you can expect to get in terms of car financing. Pre-qualification doesn’t give you a solid guarantee that you can get the estimated loan amount, unlike a pre-approval.

It’s always best to work towards getting pre-approved, in our opinion.

Final Considerations 

Now you should have a firmer grasp of what to expect when car financing. We have to stress that it helps if you are realistic with your expectations of what vehicle you can afford.

Also, your credit score is an important factor that loan companies will consider when processing your application. Yet, bad credit customers can still get car financing; used car financing is always a good option.

Thanks for stopping by, and good luck with getting your new wheels. If you need an experienced and professional dealership to help you get pre-approved, contact us today!