What Does it Mean to Finance a Car?

Man receiving keys from finance person

We know that upgrading with a new or new-to-you Genesis can be a stressful experience. We also know just how exciting these opportunities can be. Knowledge and customer satisfaction go hand-in-hand, so we’ve laid out everything you need to know about the basics of financing an automobile. So, what does it mean to finance a car? How does financing a car work in practice? We’ve answered both questions in detail below.

How Does Financing a Car Work?

What is “financing a car,” exactly? When you finance a car, you’re taking out a loan that you intend to repay over the next few years. The lender finances your purchase–that is, they pay the dealership for the automobile. You pay the lender, with interest, and achieve full ownership when you make your final payment.

Getting ready to apply for a loan? Here’s what the lender will take into consideration:

  • The amount of the loan
  • Your credit score
  • Your debt-to-income ratio
  • Your chosen loan term
  • Your chosen vehicle’s age

In some cases, you can improve your chances of getting approved by bringing proof of income or adding a cosigner to your application.

How Car Finance Works in Practice

Choosing a Lender

Some drivers will simply walk into the dealership and ask for a loan. While most dealers will be able to connect you to trustworthy lenders, and some may even offer to finance the purchase themselves, this isn’t necessarily the best option. With that said, we do pride ourselves on the ease and convenience that we offer to drivers who finance with our team.

Ask your Gulf Breeze-area bank or credit union about what kind of interest rate they can get you. If you plan on making multiple applications, make them all within a single 14-day window in order to minimize the negative impact on your credit.

Finalize the Loan Terms

Before you apply for a loan, figure out what kind of down payment you can afford to make. You’ll also want to calculate the value of your trade-in vehicle, and find out how much your monthly payments would be in the event that you’re approved. Remember to factor in other costs, such as fuel and insurance, when you’re working out a budget.

Naturally, your choice of loan term will be a major factor in determining your final monthly payment. While you can ask for a longer term–and get a lower monthly payment as a result–doing so will increase your total interest costs down the line. The faster you can pay off a loan, the less you’ll pay in total.

Want to Know More About Car Financing in Pensacola?

You’ve got a basic sense of how car finance works, so reach out to an expert on our financing team for more information such as what a good interest rate is for a car loan, how to refinance your car loan, and more! If you’re ready to make the leap, apply for financing online from your home in Navarre or Mobile, AL.

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