Most car buyers purchase their vehicles through financing. Whether you are using a credit union, bank, or the dealership, there are many questions you may have about the process. Below is a list of frequently asked questions about automotive financing.
What determines an auto loan?
There are many variables that determine the auto loan. Some of the basic factors include:
- The cost of the car.
- The interest rate.
- The length of the loan.
- Your credit score.
- The down payment.
- If a car is new or used.
You should consider each of these aspects before financing, as they can help you understand why you received certain rates, why you may have been denied credit, or why you’ve been approved for a set limit.
What is a credit score?
Credit is used to determine your lendability. In other words, credit shows financial institutions if you are likely to pay back a loan on time. Credit scores range from 300 to 850, and they are determined by your payment history, the number of loans in your name, the types of credit you have (e.g. credit cards vs. mortgages), and the length of your credit history. The best way to increase your score is by paying bills on time over several years.
What does “APR” stand for?
APR is an annual percentage rate. This is the yearly rate of interest you pay on a set amount (how much you borrowed initially). There are fixed rates, which cannot change, or variable rates, which may change over the course of the loan.
Why should I finance through a dealership?
Dealerships have established relationships with lenders across the country, which means they offer great rates and great selection. Plus, they do the work for you—there’s no need to meet with banks over the course of days or weeks. Many dealerships also offer special incentives for financing.
How much should my down payment be?
Many websites suggest that you put 20 percent of the sticker price down; however, most Americans only pay about 10 percent. The larger the down payment, the less you have to borrow. Plus, it can lower your interest rates and make you more appealing to lenders. On the other hand, not everyone has thousands of dollars on hand for a new car. Careful budgeting before you shop should help you determine how much to spend.
These are just some of the many questions you may have about automotive financing. For more information, visit the DMV website on auto loans or stop by our Finance Department at Nissan 112.