If you are in the market for a new car, financing your purchase is one of the key considerations, and by understanding the basics of car finance, you will be in a better position to know what you can and what you cannot afford.
Buying a car is a huge decision, especially from a financial point of view, so you will want to get the financing of your purchase right. Buying a car outright for cash is not an option for many people, so you will more than likely have to obtain some kind of financing from an external source. That is not to say, however, that you should expect to finance a car purchase entirely from a loan, so it is a good idea to have some savings, at least. For one thing, a finance provider will typically require evidence that you have a handle on your finances, and what better evidence than savings? Having a deposit to back up your purchase is another sensible piece of advice.
A great tip for saving money is to open a savings account and deposit some of your wages or salary directly into that account. Put in an amount you can afford and that will not leave you short for other essential purchases and bills. Becoming a regular saver is a good habit to cultivate.
The language used in financing can seem daunting, so reaching an understanding of the different terms used can help you overcome any sense of feeling overwhelmed as you seek to obtain finance for your new car. Some of the most common phrases used include:
- Annual Percentage Rate (APR): This refers to the cost of the loan amount provided and is expressed as an annual rate. APR is influenced by a number of factors, from credit history and current market rates to competition. APR can be negotiated, however, so you should try to negotiate a lower figure, in the same way that you would negotiate over the price of a car.
- Credit report: This report incorporates such information as your address; how you pay your bills; and whether you have encountered financial difficulties, such as the inability to pay off previous loans, in the past. Consumer reporting agencies have the authority to sell this information to credit providers.
- Credit score: This score is a reflection of your credit risk and is arrived at by analyzing the information on a credit file. Your credit score can be used to help calculate the rate and loan terms you will be offered when you start seeking finance for your new car.
- Total of payments: You will pay this amount after you have completed making all your scheduled payments. If you are leasing a vehicle, it will be the amount paid off at the end of the lease period.
Auto Loan Solutions are at your fingertips, thanks to the advent of the Internet. Loan companies have gravitated online, making it easier than ever to retrieve a quote for a loan or to compare loan rates between different providers.
Understanding the basics of car finance is essential to obtaining the best rate and the type of loan structure that suits you best.