How does Auto Financing Work?

In an ideal world, you would buy a vehicle by approaching a dealer at the Beach Boulevard of Cars, picking your favorite car, paying cash, and driving off. But in reality, like most buyers, you’ll need a loan if you want to park a car at your home in Huntington Beach, CA. Here’s the lowdown on what auto financing is all about.

According to Kelley Blue Book, the average new car now costs $48,681, which means it’s unlikely that you’ll have that much money lying around to pay in one lump sum. Instead, you can pay whatever cash you have as a down payment. You can also offer your current vehicle as a trade-in.

When you subtract the down payment and trade-in value from the purchase price, you’re left with an amount, say $25,000, that is needed to complete the transaction. Auto financing involves borrowing the needed amount, which you then pay off over a specified period at a particular interest rate. Only after you make the last payment do you get your car’s full title, which is also called a pink slip because of the color.

Who Offers Financing?

It’s easy enough to find someone that will lend you the amount for a car, such as banks and credit unions who make part of their money on all kinds of loans. You shop for such car loans online by simply entering it as a search term. You can then compare and analyze offers from numerous companies to find the best one for your needs. Many of our dealers also offer financing and one big advantage. They’re in the business of putting you in a car and have plenty of incentive to ensure you drive home with a vehicle. Banks and credit unions aren’t so motivated because they generate profits from loans and not auto sales.

If you’re getting your loan through a dealer, you can apply for it after you’ve selected a vehicle. Approvals can take some time, but you typically drive home with your purchase on that day. On occasion, you may be approved for a lower amount and either have to settle for a less expensive car or not buy one at all.

We recommend getting pre-approved for a loan before you begin shopping to avoid this possibility. You can do this on a convenient form that you’ll find on the dealer’s website. You’ll then know how much you can afford and confine your shopping to vehicles that meet your price range. If you have any questions about auto financing, please contact any of the dealers at Beach Boulevard of Cars.

What about Credit Scores?

Auto financing challenges include getting the best terms and interest rates, so you pay the lowest amount each month and over the length of the loan. These factors depend on your credit score, which is between 300 and 850. Scores near 850 reward you with the best deals because they indicate that you’re an excellent credit risk and will likely meet your financial obligations. Scores below 650 penalize you with higher interest rates or no loan.

You can discover your credit score and its corresponding credit report on a website such as CreditKarma.com, which is entirely free. Examine the document carefully, and if you find errors, you can bring them to the attention of the reporting merchant for correction. You can then go about improving your score by paying your bills on time and reducing the amount of debt you carry.