Car finance is the process of using a loan to pay for a vehicle. There are many different ways you can get car financing, including through a dealership, credit union or bank. The decision you make will depend on your needs and budget. There are pros and cons to each option, but understanding how car loans work can help you find the right loan for your lifestyle.
Purchasing a vehicle requires a financial commitment, and most buyers end up financing at some point. A car loan uses the purchase price of a vehicle as collateral, which means that if you fail to pay back your loan, the lender can take control of your car.
To avoid paying more than the vehicle is worth, it is important to compare a car loan’s monthly payment, annual percentage rate (APR) and loan term. A longer loan term may result in a lower monthly payment, but the overall cost of the loan will be higher because of the extra interest you’ll pay.
Dealership financing is convenient because you can complete the entire process, including selecting your new car, in one place. However, it’s important to shop for car financing before you head to the dealership so that you can understand the terms and costs of the loan you’re getting. There are a number of direct lenders, such as banks, credit unions and online financial institutions that can offer competitive car loans. Taking the cost and rate information from these sources to the dealership can help you negotiate with the dealer. car finance