How Does Car Financing Work?

January 5th, 2019 by

young couple getting keys to a new car

Not many people can afford to pay cash for a new or used vehicle, which is why they rely on vehicle financing. So, what does it mean to finance a car? This financial process involves a lot of information, a variety of parties, and can vary based on your financial history and current financial status. If you’re looking for an auto loan in the Beckley area, read on to learn more about how financing works.

Financing Factors

Your auto loan will come from a lender, and this can be the dealership, a third-party lender via the dealership, or a third-party lender you find on your own (such as your bank). No matter the lender, there are certain financing factors they look at in order to make their decision.

  • Credit Score
  • Amount of Loan
  • Debt-to-Income Ratio
  • Length of Loan
  • Age of the Vehicle

If you have a good credit score with good credit history, make decent money with a stable job, and are willing to put some money down, chances are you’ll end up with various loan offers that include attractive interest rates. However, if you have poor credit, no stable income, and/or cannot afford to put money down, chances are you’ll either be declined for a loan or you’ll need to pay a higher interest rate. Consider taking a friend or family member to cosign, in this case.

How to Choose a Lender

As a driver, you have your choice of auto financing lenders to choose from. When looking for a lender, the most important factors to look for include:

  • Interest rates
  • Length of loan
  • Reliability

The higher your interest rate, the more money you will pay for the vehicle over time. This means you want to focus on low interest rates. In addition, the length of the loan will play a role in your monthly payment. You’ll have a higher monthly payment with a shorter loan and a lower monthly payment with a longer loan, but you’ll pay less interest with a shorter loan. Finally, you want to choose a lender you can trust, so be sure you are not signing a contract with a company you don’t trust.

How Terms are Finalized

The lender will calculate all the factors involved, such as your credit score, money down, the price of the vehicle, the age of the vehicle, and your current job status. All of these will play a role in the type of loan you’re offered. You can negotiate with your salesperson until you arrive at a loan with an interest rate that works well for you. Then, you’ll sign the necessary paperwork and drive home to Parkersburg in your new vehicle!

Learn More at Land Rover Charleston

If you’re looking for auto loan options in the Huntington area, let the team at Land Rover Charleston help. We have a variety of financing options for you to choose from, so contact us today to schedule a visit or apply for financing on our website. Our expert team can help answer all your questions about how car finance works.

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