Your car is one of the best investments you can make. That is why getting a lot out of it is important. However, you need to know how to finance a car? It can be hard if you do not from where to start. You have to make the car financing work by getting a loan from a financial institution. Or else a lender will aid you to cover the cost of the purchase. So here you will learn all there is to know about financing a car. As having a car is one of life’s necessities you can finance a car to get on the road. Continue reading to know more.
How financing a car works?
If you finance a car, a financing institution will lend you the amount you need to buy the car. But you will get the amount through the installment credit. So for that, you have to pay the down payment which will be equivalent to the percentage of the loan amount. After that, you have to pay back the rest of the cars’ amount over a period called the loan term. You will have to make regular monthly payments to the financial institution. So this is basically how car financing works.
Know how to finance the car
Have a clear understanding of your credit score
Your credit score is important because it shows the financial institution your creditworthiness. They will analyse your credit score and will check if you will be able to repay the loan or not. If the numbers of your credit scores are high, then it means that you can repay your loan. But if the scores are low then it means that there is a high chance for loan default.
Do you know that there are three major credit bureaus? Those are Experian, TransUnion, and Equifax that determine the credit score. Moreover, the financial institution may use different scales to determine the scores. So it is best to keep your credit scores good before finding a lender to finance a car.
Also read: Loan 101: 4 Different Types of Loans for Individuals
Know about the keywords and terms of lending
There are some important terms tied with lending that you will come across frequently if you are trying to finance a car. So, know about the clear meanings of all the financial terms. Here are the following terms you have to know about.
1. Car loan or car financing
A car loan or financing is a contract made between the borrower and the lender. The lender will agree to offer the borrower cash to purchase a new car or a used car. Also based on the conditions the borrower has to pay back the money he borrowed from the lender.
Most of the times the interests are also included and the borrower has to pay it each month. Moreover, the rate of interest will be available in the loan papers. Until the borrower fully pays for the car loan the lender will hold the title of the vehicle.
2. Car loan term
The loan term is the period of auto loan. It is counted as the number of months. For instance, the loan terms 36 to 48 months were once considered as the most used lengths. But today the cars have become very expensive so the loan period has extended to 60 to 72 months or longer. You can divide the loan period by 12 so that you can get the number of years for a better understanding.
If the length of the loan period is long it can be risky because you may have to pay a high rate of interests. So it is always better to choose the short loan period which you can afford.
3. Down payment
The down payment is the amount you pay initially when you purchase the car. It can be a cash payment or trade-in. Therefore, the amount you have to finance will be the difference between the car price and the down payment amount.
4. Decide the budget
Before fixing the model of the car, it is always the best idea to decide on the budget. For instance, you may like to buy the sports model of the car however the standard model will more suit your budget. Therefore, instead of having more on your plate why not purchase a model which you can finance. As you will be paying interest and also other fees you have to examine your budget before diving into anything.
5. Choose whether you are getting a loan or lease
You have to choose between two general options such as getting a loan or a lease. Leasing the car is the same as renting. This means that you have to return the car to the dealership if the lease term ends. So if you want to lease a car you can get all the details about it in the dealership.
6. Learn about all financing options
If you like to finance with the help of a traditional loan you have to research it. There are lots of financial institutions and different companies will offer different incentives, financing terms and interest rates. There are online lenders too with the help of which you can finance a car. Therefore, you can do a thorough research of all the available options.
What do you need to finance a car?
Here are some of the criteria you should fill to get car finance. This will make sure that you get finance without rejection. So here is the list of things you need to become eligible for car finance.
- You have to be a salaried or a self-employed person.
- Most of the car finance companies will offer loans to corporate companies, partnership firms and trusts. They have to fill certain criteria arranged by the lender.
- You have to fall under the age limit set by the lender. It may be between 18 years to 65 years.
- The income levels of the person of a certain occupation may vary based on the loan amount and the car model.
- The documents such as identity proof, address proof, income proof and others are a must. You have to provide it to the lender.
Is it better to finance a car through a bank or dealership?
There are both pros and cons in financing a car through a bank or a dealership. But you have to choose the one that suits your situation. For instance, if you have a poor credit score then it is best to finance a car through a dealership. This is because banks will analyse your credit score and only if you pass the test will they help you to finance a car.
So if you want to finance a car through a bank your credit score has to be above 750. But a dealer will always help you get your loan approved. Also, they will give you certain financing packages if your credit score is low.
What is the best way to finance a car?
If you want to know the best way to finance a car, then follow the points given here.
1. Find the right deal
You must find the right dealer or the bank to finance a car. Then only you can have a good experience without a lot of ordeals. Check the fees and other payments.
2. Visit your existing banker
If you already have an account in a bank, then visit them. Also, know the details about financing a car from them.
3. Check the eligibility of the car
Each bank has different eligibility criteria for cars. So whether it is a used car or a new car know about the eligibility criteria.
Conclusion
These are the best ways to finance a car. Follow the points above and buy the car you prefer.
