Picture it. You’re in the market for a car. And after weeks of searching and test driving, you finally find the perfect car for you. One important step left before you drive off the lot with the windows down and the wind in your hair: figuring out the financing. Yikes!
Does the thought of car financing fill you with dread? If so, you certainly aren’t the only one. Financing a car might feel intimidating, especially if it’s a new process. The good news? Car financing is relatively simple; all it takes is some basic knowledge before jumping into the driver’s seat.
What Does It Mean to Finance a Car?
First things first: what does car financing mean, exactly?
This refers to purchasing a car with the help of a loan. Of course, a loan isn’t your only option; you can purchase a car in full or even lease one. But considering the cost of a vehicle, most people opt for a car loan. It allows you to pay off your car little by little.
How Do Auto Loans Work?
What is an auto loan? You borrow a specific amount of money to help you purchase your car. You can get an auto loan from banks, credit unions, or the dealership. Then you pay back this loan, with interest, over a set time – usually three or four years (though this time frame depends on your specific loan).
Each loan has an APR, or annual percentage rate, which refers to the interest you pay on the loan. This is an important number to pay attention to; a lower APR means you will pay less over the life of the loan. It’s a good idea to compare rates on different loans and ensure you get the best rate possible.
Other numbers, like your credit score, matter when it comes to getting an auto loan. The better your credit score, the better loan rates you can get.
What Are “Secured” vs. “Unsecured” Auto Loans?
You may come across the terms “secured” and “unsecured” while exploring car loans and wonder: what exactly does this mean, and is an auto loan secured or unsecured?
Generally, these terms concern loan repayment and the consequences of not paying. A secured auto loan means that one stipulation is that your lender can take collateral – your car – if you miss a specific number of payments. In contrast, an unsecured auto loan prevents your lender from taking your car for missed payments.
Most car loans are secured. One advantage of these is that lenders are more likely to offer a lower interest rate on a secured loan since they have built-in collateral for missed payments. Unsecured loans, on the other hand, require a personal loan. These are frequently associated with higher interest rates and shorter repayment time frames. So while you can use a personal loan to purchase a car, be aware of any potential impacts on the cost of your vehicle.
What Does the Process of Financing A Car Look Like?
You might wonder what is the best option to finance a car or what the financing process will look like. The best financing option will depend on your needs, but keep in mind the following steps:
- Research the kind of car you want/need before shopping.
- Have a clear budget in place so you know how much you’ll want to spend.
- Know your credit score (and improve it if need be).
- Shop around to ensure you’re getting the best deal.
- Get preapproved for an auto loan so you’re ready to go.
- Know your monthly payment goal – but focus on the overall cost of the car.
Understanding these steps will give you a great starting point for finding and financing your vehicle. Remember that car financing doesn’t have to be complicated. Just a little research will set you on the right path.
Interested in finding the best deal on a new or used car? Contact us at Allways Atascosa. We’re happy to help with the car financing process at every step.
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