Car Financing 101


Presentation Description | Car financing is the act of taking out a loan to pay for a new or used car. The monthly payments on a car loan will vary depending on the length of the loan, the buyer’s credit history, and the loan’s initial principle.


Presentation Transcript

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When shopping for a new or used vehicle “how am I going to pay for this” is just as important a question to ask yourself as “what kind of car do I want” For most people paying the entire cost of a new car upfront simply isn’t an option. In order to buy that new car truck or SUV most people turn to car financing to cover the costs.

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“Car financing” is the process of taking out a loan to pay for a new or used car. In exchange for the loan the car buyer agrees to pay back the lender the full price plus interest over a given amount of time. Financing a car can be done through banks credit unions and similar financial institutions or through the dealership where a car is purchased.

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Until the entirety of the loan and interest are paid a car purchased with financing technically belongs to the lender. The title for the car will not be turned over to the person driving it until all payments have been completed. If payments are not made or are consistently late the title holder can repossess the vehicle.

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Because of this it is very important to select the right financing options when looking at new or used cars for sale. In addition to the loan principle i.e. the amount of money borrowed car shoppers need to keep the following factors in mind: • Interest rate • The loan term i.e. the length of the repayment schedule • Monthly payment amount

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Charging an interest rate is how lenders make money on their loans. A loan agreement’s interest rate will vary depending on a person’s credit score which is what lenders use to determine whether or not someone is a good risk. Generally getting the best interest rates requires having a credit score of 720 or higher.

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In addition to principle and interest rate a loan agreement will also have a set period of time 5 years 7 years etc. in which the loan must be paid off – that is the loan term. Loans with shorter terms need to be paid off faster which usually means higher monthly payments. Longer term loans usually cost less per payment but end up accruing more interest that will need to be paid off.

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Most car loans have required monthly payments. The principle interest rate and term of the loan will all affect how large these monthly payments are. As a general rule car buyers should not take out a loan that requires monthly payments amounting to more than 20 of their monthly income.

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To get the best deals on financing a new car sale car shoppers should: • Shop around – different institutions will offer different loan rates. Don’t just settle on the first offer. Get proposals from the dealership and multiple financial institutions. • Raise their credit score – paying off debt 6 to 9 months before applying for a loan can bump up your credit score which can result in more favorable interest rates. • Keep trying – if a car loan application gets rejected don’t give up. Keep trying until you find a lender who will offer you acceptable terms.

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Desert Sun Auto Group is New Mexico’s most reliable new and used car dealership. We are committed to offering our customers the best new and used vehicles available and to making the purchasing process as simple and pain-free as possible. For more information please visit

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