Factors That Affect Car Finance
Car buyers have two ways to pay for a vehicle: they can either pay cash or finance the purchase with an auto loan or lease. Financing typically increases the total cost of a car because you are paying for the added expense of credit (interest charges) in addition to the vehicle’s purchase price. Fortunately, you have many financing resources to choose from and it’s important to know how each works before you shop for your next ride.
The first thing to consider is your credit score and the maximum amount you can borrow. You can take proactive steps before buying a car to improve your scores and qualify for the best rate.
Other factors that affect car finance include a down payment, trade-in value, and the choice of optional add-ons like service contracts, warranty coverage and credit insurance. These costs can significantly increase the total monthly payment and should be factored into your budget.
Choosing the right loan term is another important step. The shorter the loan term, the more you’ll save in interest charges. For this reason, Consumer Reports recommends buyers consider a loan term of three years or less when purchasing new vehicles and five to seven years for used ones. The lender’s underwriting criteria can also influence the interest rate you receive, and it’s worth looking at lenders that specialize in helping borrowers with bad credit or no credit get approved for an auto loan.car finance