Auto Financing

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Understanding the Facts of Auto Financing

The overall price of new and used vehicles has reached the point where most people need to apply for auto financing to make a purchase. However, many consumers do not feel comfortable about the car loan process that is presented to them. This is usually due to the wide variety of:

  • Car Loan Companies
  • Lending Options
  • Credit Score Types
  • Financial Requirements

These are all things that can intimidate a first time car buyer or even an experienced buyer, but they don't have to. Auto Credit Express is fully capable of helping people experience a quality and worry-free vehicle loan process, and has done so for nearly two decades.

Where Should You Start for a Car Loan?

People should know what to think about when applying for an auto loan, and at the top of the list of things to consider is where to go to apply. Every type of auto finance company is different, which has an effect on how they approach certain applicants:

Bank/Credit Union - A large number of customers turn to their own personal bank or credit union when financing a vehicle. These types of lenders are known for offering better rates, special benefits, and personalized loans for individuals who have accounts with them. The downside of car loans from banks is that they generally involve higher down payments for people who have poor credit scores.

Auto Dealership - Local dealerships are one of the primary places that car buyers turn to when they are in need of an automobile loan. This is largely due to convenience, connection to banks and loan companies, and special incentives/finance programs offered by manufacturers. Some dealers are also more open to offering car financing to people with credit problems and limited money down, but that depends on the lenders that they work with.

Online Referral Source - There are a number websites, like Auto Credit Express, that feature a car financing quote service to people across the country. By using this type of service, you're able to experience a fast and easy car loan process that caters to consumers with subprime credit scores. These services take your loan request and connect you with local dealers that, in turn, connect you with the best special finance lenders.

Online Lenders - Many banks and loan companies will allow you to apply online. The downside is that these lenders mostly only work with applicants who have good to excellent credit scores.

BHPH Car Lot - A buy here, pay here car lot is typically viewed as a last resort car loan source for people with bad credit ratings. Often, consumers can get financing with no credit check, and the dealer offers a loan based on the value of the vehicle. However, these loan agreements come with high monthly payments, interest rates, and down payments. There is also a chance that BHPH dealers will not report to the credit bureaus if you make timely payments on a loan.

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What are the Average Vehicle Finance Terms?

The length of a car loan will determine how long it will take to repay your finance contract. A lender will generally offer car loan terms for 36-72 months, which means that you have three to six years to repay the vehicle price plus interest to the lender. The interest rates and loan terms offered can vary and are based on a number of factors, including down payment and credit scores.

It's important to realize that your auto financing term also plays a role in determining what your interest rate is, and therefore, how much your monthly payment will be. For example, a typical 60-month loan term will carry a higher interest rate than a 36 to 48 month loan, but it will also come with a lower monthly payment. Also, as a buyer, you're able to finance a more expensive vehicle and spread out the payments across a loan term. Yet, most finance companies will still suggest that people select a shorter loan life.

Having these basic qualifications can greatly improve a person's chance to get approved for a car loan, but are not as beneficial to those with bad credit who are looking to lease.

This is largely due to the fact that there are a number disadvantages to long term financing, such as:

  • Increased risk of being "upside down" on your loan
  • Loss of equity in a new vehicle
  • More interest will be paid over the loan term

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How Credit Scores Impact Automobile Loans

One of the most important things that a dealer looks at when it comes to financing an automobile is your recent credit performance. A credit report contains useful information that outlines:

You must understand that the reason loan companies place such a high level of importance on down payments stems from their need to recover some of the balance on the loan, in the event that the borrower defaults. This can really become important if your credit report shows instances of:

  • How much debt you have
  • Your past payment history
  • How long your line of credit has been in use
  • Your major debt total

All of these factors are used to assess the likelihood of you repaying the loan. It also has a large impact on the interest rates you'll receive. Those who have low credit scores are often viewed as high risk borrowers and, if approved, will face higher than normal rates.

It's also much more difficult to qualify for auto financing with no down payment if you have bad credit. For borrowers with credit problems who need a vehicle, it is usually a requirement that they have either a cash down payment or an equity trade-in. These forms of up-front payments can help influence a lender to approve your application, while also lowering your monthly payments.

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as of 07/22/2024

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