All You Need to Know About Auto Financing

When it comes to financing your dream car, many people start to panic. Loan applications, credit scores, and the possibility of denial weigh heavy on their minds, but with these tips, getting the financing you need to drive away in the car you’ve always wanted is a breeze!

Car Loan Basics

The way a car loan works is that you borrow money from a lending source and pay it back over an allotted amount of time. In almost all cases, a certain percent of interest will be added to your loan. For example, if you take out a car loan for $20,000 with an interest rate of 5 percent, you will end up paying $21,000 back to the lender over the life of the loan. On top of the purchase price of the car, it is important to take into account taxes and fees from the auto dealer, and the general cost of owning a car (i.e., insurance, gas, maintenance, etc.). Car loans are approved for millions of people every day and are among the most common ways of purchasing a new or used car.

Terms of the Basic Car Loan

Car loans come in different amounts depending on your need, and every loan comes with its own set of terms. These terms involve the interest rate and the length of time you have to pay back your loan. A common mistake many people make is that if they get a five-year loan, they assume that as long as they have it paid off in five years, all is well. This is not the case. Most loans are to be paid in monthly installments, and it is very important to pay attention to your loan terms so as to not fall into any type of loan debt.

Credit Scores and Auto Financing

Your credit score will directly reflect on the amount of interest you pay on your car loan. Unfortunately, in most cases, the lower your credit score, the higher the interest you will pay over the life of your loan. In this aspect, knowledge is most certainly power. Knowing your credit score is important because it will help you be prepared for whatever interest rate might be coming your way.

One Application Is Never Enough

When it comes to auto financing, the motto “Try, try again” will become your best friend. When applying for car loans, it is a good idea to apply to more than one different lender at the same time. Banks, credit unions, and other lenders all offer different types of financing, and just because you apply does not mean you have to take any specific offer. Filling out numerous applications will increase your chances of finding the perfect financing for your personal situation, but it is imperative to fill these forms out honestly. When applying at multiple lenders at the same time, it is a good idea to do so at the same time so your credit score will not be negatively affected.

Bad Credit Auto Financing – And Setting Your Expectations

What should you anticipate if you apply for a bad credit auto financing loan online? It in fact depends on what sort of web site you apply with. There are four types of websites contending for you business, they are:

Bad Credit Auto Financing Services

Bad credit auto financing services, (or an auto loan locater), have a reputable network of auto dealers that finance people with bad credit, a hands-on customer service department, and affiliate partners. In addition, these services have associations with direct marketers and direct lenders. People that utilize the bad credit auto financing service can anticipate working with a single auto dealer in their area that is exclusively trained in helping them buy a car. They cannot help everybody but they can help most people with realistic expectations that are willing to put forth the effort to restore their credit rating. Direct Marketers Direct marketers often conceal their true character and make phony claims when promoting their service, for example, if you Google™ “Buy a Car with Bad Credit”, you will see ads for websites that declare:

100% Approved
99% Approved
No Credit Check

Unless the advertisement is ran by a buy here pay here dealer with in house financing, the “No Credit Check” claim is not only artificial, it is an obvious lie. If you have to give up your social security number on the application, chances are a credit report will be ran to verify your suitability for an auto loan. Direct marketers focus is to gather your individual information and resell it to the highest bidder, which includes auto financing services, car dealers, and direct lenders. People that ask for a quote from a direct marketing website are often left with the feeling that they were over promised and under delivered. So I guess what we’re saying is, these websites do a poor job at setting expectations and lead clients to believe that any thing that customer wants they can get, in spite of their income, monthly budget, money they have to put down, and credit score.

Direct Lenders

Direct lenders do a meager job of approving people with bad credit online. Most of their “Bad Credit” programs are customized for people with marginal credit. People with marginal credit have credit scores in the 600 range. Alternatively, if you are approved with a direct lender you can shop at most any licensed auto dealer just as a cash buyer would. If you submit an application with a direct lender and they turn you down for a request for financing, they will repeatedly recommend to you the services of a highly regarded bad credit auto financing service.

Auto Dealers

If you apply directly with a car dealer you will know who has your information, but the downside is that the dealer that you applied with may perhaps not have the people, procedure, cars on hand, and lenders in place to approve your particular credit circumstances. If the auto dealership is not capable of helping you finance a car with bad credit, then my friend you will have to start the procedure all over again.

Auto Credit After Bankruptcy is a free resource for Americans and Canadians with bad credit looking to finance a car loan while bankrupt or get an after bankruptcy car loan. The website has informational tips on getting approved for bad credit auto financing. As well as numerous bad credit tips and advice.

Navigating The Auto Finance Process: Credit, Interest, Terms, and Liens

An important part of buying a new or used car is auto financing. Some people pay for their cars all in cash. But most people drive away in their new purchase by paying only a partial amount to the dealer, also known as a down payment. This is the amount in cash that you are willing to pay on the spot to the dealer. What you cannot pay for at the time of the sale is covered by a loan. Lenders like banks arrange loans to provide the rest of the money for your car and make arrangements with you to pay the cash back.

The Impact of Credit Score

The amount and repayment terms of your loan are mostly dependent on your credit score. Basically, a credit score tells the lender how likely you are to pay off the loan. Good credit scores are reflected in high numbers, starting at 650 and up, and allow for larger loans. Lower credit scores usually result in smaller loans.

How Interest Rates Work

Of course, lenders will not just simply let you borrow the amount of money you need. All loans come with an interest rate, which is the additional amount over the original loan that the lender charges you for borrowing the money. The interest rate is a certain percentage of the entire loan amount. It is paid on a monthly basis and calculated as an Annual Percentage Rate or APR. The actual APR will depend on your credit score. High scores can mean interest rates as low as 2 to 5 percent. If your credit is less than perfect, expect to have an APR starting at 15 to 17 percent.

How Long to Finance

It is important to consider is the term of the loan, or the number of months it will take you to pay back the money. Typically, loan periods range from 36 to 60 months. More months result in smaller monthly payments but, over the loan’s lifetime, will result in higher interest payments. For shorter terms, you repay more each month but will save on the total APR paid. Your monthly income will determine how large a repayment you can afford to make.

How a Lien Works

While you possess the car, the lender is the one who actually owns the car until the loan is fully repaid. This is called a lien and is the security for the loan. Once paid off, the lender will issue you the certificate of ownership. However, if you miss or stop making payments, the lender can legally take the car back. Besides losing the car itself, you will also lose all the money you have paid for the car up to that point.

Options for People with Credit Problems

If your credit is so bad that banks won’t lend to you or will do so only with outrageous repayment terms, your other options are credit unions (if you are a member) or private financing companies. Many automakers have their own in-house financing departments; a possible drawback to this type of loan is that you can buy your car only from the dealers who are part of that financing network. If possible, avoid financing through the dealer, as it makes a commission off every loan arranged, which is added to the APR and increases the total cost of your car.

Possible Vehicle Restrictions

Lenders may also limit the amount of the loan and the condition of the car. Sometimes loans are available only for cars of a certain model year and total mileage. These conditions help reduce the amount of risk taken by the lender on the loan. Before buying your next car, make sure you know the financing options that are available to you so you can decide which one best suits your budget.