How Does Car Financing Work?

buy car online
Congratulations! You’re getting ready to purchase your next car. But before you can get behind the wheel, you’ll need to create your custom financing plan. We’re here to help you learn the ins and outs of car financing. So, if you’ve ever asked yourself, “How does car financing work?”, keep reading to learn more!

What Is Car Financing?

Car financing is a way for you to get behind the wheel of your dream car without having to pay the full amount of the vehicle outright. This gives you the ability to make smaller payments over a period of time.

The length of your automotive loan is set at the time of purchase. Typically, like with most loans, you’ll have to pay interest on this automotive loan. Your credit score can factor into what percentage the interest rate will be.

PRO TIP: Experts say a good credit score when buying a car is anything above 660.

If your credit score isn’t at or above 660, you can consider having someone co-sign the automotive loan. A co-signer is someone who will take on the responsibility of a loan if it isn’t paid on time. Knowing two people are responsible for your car loan may help lower this interest rate.

What Factors Into Car Financing?

There’s more to car financing than simply paying the total value of the car. Each financing plan is unique to the driver’s needs so you and the loan provider both benefit from the loan.

Things like credit score and interest rate impact the total amount you’ll pay over time, but there are some additional factors that may help lower your overall payments:

  • Loan term: How long you finance for will alter how much you owe per payment. The shorter the loan term, the higher your payments will be. So, if you need to pay less each month, extending the length of your loan may help. Remember, though, extending your loan term means you’ll pay more in interest over the life of the loan.
  • Down payment: Down payment is the amount of money you initially put toward the vehicle. This amount is subtracted from the loan amount. So, the more money you put toward your purchase, the more likely you are to have lower monthly payments.
  • Trade-in value: Are you upgrading your current ride? Trading in your car is an easy way to lower your monthly payments since the value of your current car is deducted from the value of your new purchase.

Of course, if you have any questions about the financing process or if you’re unsure what’s best for your requirements, our team is here to help!

Common Financing Terms

There are some terms you’re likely to hear when financing a car. Let’s take a look at some of these terms:

  • Annual percentage rate (APR): The yearly rate for borrowing money from a particular loan institution.
  • Lender: The entity from which you borrow money. When it comes to car financing, this could either be the dealership or a bank the dealership works with.
  • Preapproval: Some dealerships may provide pre-approved financing that lets you pre-qualify for an automotive loan before you finance a car.

By knowing these basic car financing terms, you’ll be more prepared to secure your automotive loan.

Learn More About Car Financing Today

This quick guide to car financing was designed to help you learn more about how car financing works. Of course, there’s still more to learn.

Talk with one of our expert financers to learn more about car financing, your unique requirements, and more today!


AcceleRide 39.367845, -94.582714.