Understanding the Basics of Vehicle Financing

Purchasing a new vehicle can be a very daunting task. The average vehicle today costs anywhere from $15,000 for a used model and almost $30,000 and up for a new vehicle. Because of this increased cost, most consumers have to have some type of financing. The financing will help with the vehicle purchase by setting up payments per month. It is important for consumers to understand the financing process before shopping for a vehicle. Understanding the lingo and how financing works allows for consumers to get the best deal. Below is a simple guide to understanding vehicle financing. 

Financing

When it comes to purchasing a vehicle, consumers have two options: Direct Lending and Dealership Financing. With direct lending, the consumer is using a bank, credit union or finance company to obtain a loan. The financial establishment will need personal information to see if you qualify. If you do, you will then agree to a set amount for purchase, then an agreed finance charge which is paid over time. once a contract is in place for a new vehicle, the contract is signed and the amount is paid to the dealer. You are then responsible for a monthly payment on your new vehicle.

With dealership financing, you have the option of financing the vehicle directly from the dealer. You agree to the price of the vehicle and a finance amount, plus a charge which is set over time. In most cases, the dealership will retain a contract but sell the contract to a bank, credit union or finance company as an assignee. This group will then accept the payments on your loan. Most consumers find that dealership financing is best because it is convenient, there are more financing options and special programs can be found for saving additional funds during the purchase.

Your Credit

Before purchasing a new vehicle, it is also a good idea to check your credit report. you want to be sure that you have an up-to-date account of your credit. to obtain the best loan, you will need a score of 725 or higher. Always check your credit and work on any issues so that you do not have any problems when purchasing a new vehicle.

Consider a Co-Signer

When financing a new vehicle, you may be in need of a co-signer. A co-signer is someone who signs a loan agreement with you to assume an equal responsibility for the amount owed. You want to choose someone who has a good credit history and one that is willing to help you if you are in need. This is a major obligation and one that the purchaser of the vehicle must take very seriously.

Affordability

Consumers should always be aware of their finances. Take the time to go through your financial records and bills for each month to be able to determine the payment amount you can afford. You never want to spend more than you have or you may end up losing money and your new vehicle. Do a little budgeting and determine a set amount you have for a vehicle payment and stick to this amount. This will allow you to remain comfortable in your lifestyle despite a new vehicle purchase.

Overall it is important to learn the basics. Take the time to learn financial terms and even go so far as to speak with a loan officer to find out what you can afford as well as learn about the process. You will feel more comfortable with a new vehicle purchase by learning more about the process.

About the Author

Ashley Parker has vast experience with purchasing vehicles and likes to spread her knowledge about the financial aspects of a purchase. A great bonus tip is to search for a website of a car dealership so that you can take advantage of special deals and promotions.