4 Things You Need to Know on How Car Financing Works
Financing a car calls for plenty of research before settling with a car to go with or a financial option to go for. There are pertinent questions whose answers should determine which financing option you choose. However, before settling for anything, you should first determine how much you can afford by getting a copy of your credit report.
You can get money to finance a car from either direct lending or dealership financing. For direct lending, you can choose to borrow money from a bank, credit union, or finance company. The given loan carries the amount financed, finance charge, and period of time for repaying the loan. On the other hand, dealership financing entails entering into a contract with a dealership, and paying for the car over a period of time, including the finance charge. The difference between the two options is that in direct lending the money comes to you directly from the lending institution, while in dealership financing the dealership sells the contract to the lending institution, which services the account and collects payment from you.
Questions to Ask
While choosing a car financing option, you should know which questions to ask to help you settle on the best deal. Some of the questions to ask revolve around the interest rate you are paying. The best way to know the actual interest rate you are paying is by going for the annual percentage rate (APR), which gives the interest rate on the unpaid balance of the loan. You should also find out if there are any penalties, and the exact price you will be paying for the vehicle. Also question the exact amount being financed, the exact cost of each payment, and credit insurance. If the lender requests for credit insurance, determine how much it will cost you and make comparisons to an existing insurance policy if you have one. You should also find out if your financing loan is contingent on approval form a third party.
Loan Options and Rebates
When choosing loan options, do not only look at the interest loan. The best rate to go with is the APR. However, rebates are also a viable option, and everyone is eligible for a manufacture’s rebate. Consequently, by doing your Maths correctly, you can determine which of the two options will give you a higher saving and settle for that one.
Finding the Best Rate
The easiest way to find the best rates for car financing is by doing comparisons of what is available. This can be done using internet sources such as Bankrate’s daily update of loan rates. Most lending institutions also offer auto loan quotes on their websites or apps. Once you go through the different platforms, get at least three quotes and analyze them thoroughly before settling for one.
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