How to Finance a Car Purchase
Buying a car is one of the largest financial decisions you will make. If you’re in the market to buy a car, understanding how car financing works can be overwhelming. However, understanding the basics of how auto financing works can help you make better financial decisions about purchasing a new or used car.
Before you buy a car, it is important to understand the basics of the best way to finance a car. It’s especially important to research the best place to finance a car to make sure that you’re getting the best financing options. Different financial institutions may offer different options when it comes to auto finance, auto loans, auto refinance, and more.
At Arkansas Federal Credit Union, we offer different financial products and benefits to our members, including new and used car financing and refinancing options. AFCU provides our members with professional assistance to help you get the right deal for you and your family’s finances.
What Does Financing a Car Mean?
When you are financing a car, you and the dealership agree upon a contract for you to pay back over a period of time. Typically, the dealership will sell your contract to a bank, credit union, or other financial institution and you will make payments to them.
It is important to understand the finance options you have before choosing how you’ll get car financing. Financial institutions such as Arkansas Federal can provide you with car loan options that you can use to finance the car when you shop at the dealership, which may help you get better deals on your new or used car purchase.
How Does Financing a Car Work?
Once you decide to purchase a car, you have two financial options. You can either pay for the car in full or you can finance it. You can finance your vehicle by leasing a car or using a loan to make the car payments over a longer period of time.
If you choose to finance a car, you should be aware that financing increases the total cost of the car. You have to factor in the cost of the vehicle, the loan amount, interest, and additional costs. If you are using a loan to purchase the car, there are loan factors that you should consider when determining which is the right option for your finances and how much it will cost to purchase a new or used vehicle.
Three major factors make up the entire amount that you will pay; the loan amount, interest rate, and the annual percentage rate (APR). All of these factors will make up the monthly payment amount you will have to pay back.
If you’re interested in getting the best deal, you should consider looking for a lower percentage rate that can reduce your monthly payments as well as the total cost of your vehicle purchase. Additionally, if you have bad credit, the cost of your car loan may increase. Because credit scores play a key role in determining the loan amount and loan term, boosting your credit score before making a purchase will increase your chances of getting a better deal.
At Arkansas Federal, we offer car loans, refinancing, and other financing options to our members to help them find the best deal for their finances. If you’re interested in getting an idea on what a loan with our credit union may cost, Arkansas Federal provides an auto loan calculator to help. You can talk to one of our loan officers to get details of what your options are for financing.
How Does Leasing Work?
Not all auto financing options include taking out a loan to pay for the vehicle. Leasing is another option to consider when you’re financing your vehicle. When you lease a car, you will pay a portion of the car’s cost and then return the car to the dealer at the end of the lease period. In other words, you are paying money to use a new car, not to own it.
If you choose to lease a car, you will be required to make monthly lease payments. You are “renting” the car for a fixed period of time. At the end of the lease, you will have to return the car to the dealership, and have to either buy the vehicle from the dealer, find another car to lease or purchase another vehicle. Some leases have conditions for purchasing the vehicle at the end of the lease term.
Leases can be a good option if you’d like a new car every few years but may not be the best choice for long-term financial benefits. For example, when you choose to lease a vehicle, you aren’t building equity in the car. Rather than building equity, you are simply paying to use the vehicle. Additionally, you often have to lease the car through the dealership rather than your own financial institution, reducing your choices for financing options.
What If I Already Have a Car Loan?
If you already have a car loan and are looking to get a better deal, auto refinancing might be the best option for you. An auto refinance loan is where a financial institution, bank, or credit union offers to pay off your existing loan and replaces it with a new one with new payment terms.
Often if you refinance your auto loan, you may be able to get a better deal or lower monthly payments. If you are interested in comparing your current loan to a new loan option, apply for an auto refinance to see how much money you could save.
Arkansas Federal provides members with new and used auto loans to get the best deal for you. Our auto loan professionals are dedicated to helping you throughout the auto loan process. If you have any questions regarding auto loans or auto refinance, contact us today.