Learn the Basics of Car Financing Here
What You Need to Know About Car Financing
Buying a car is a significant deal in life. This is especially true when it’s the first time. Everyone at Davey Auto Sales does their best to make the buying process as smooth as possible. However, there are still some things that you need to know about car financing before you visit us. Our team put together this guide to help people get a basic understanding of car financing’s key concepts. Follow along with us below.
READ MORE: Need Help Finding a Car Loan? Click Here!
How Do Interest Rates Work?
Over the last few years, interest rates have been extensively covered in the news. When it comes to getting a car loan, the interest rate is an annual fee charged by lenders on top of the money borrowed. Shopping around for the lowest possible interest rate is crucial to keeping your car payments as affordable as possible.
There are a few factors that can determine how much interest a borrower will be charged. The most common elements are a combination of
- Borrower’s credit history
- Borrower’s credit score
- Loan amount
- Length of the loan
People with a low credit score or a history of missed payments will likely be charged a higher interest rate.
Improving Your Credit Score
The first thing any auto loan lender is going to do when the subject of financing comes up is run the buyer’s credit history. Buyers can improve their credit scores prior to applying for a loan by doing a few things:
- Pay off any open loans. Having a high debt-to-income ratio is a problem for lenders.
- Get current accounts up to date. Late payments or accounts in collections will have a major impact on credit scores.
- Don’t open new lines of credit. Applying for things like new credit cards will cause problems for the debt-to-income ratios, mentioned above.
Important Financing Terms to Know
To be sure automotive financing comes with a language all its own. Our team put together a few important terms you should know before you start looking for financing.
- Actual Cash Value – The value of the car according to recognized industry sources.
- Annual Percentage Rate – The cost borrowers pay each year to get a loan, including applicable fees.
- Co-signer – A person who agrees to be responsible for paying the loan if the borrower fails to pay.
- Down Payment – An initial payment made to lower the amount of money that needs to be borrowed to buy a car.
- Negative Equity – The difference between the value of the vehicle and the amount owed on the loan.
- Principal – The amount of money that a borrower agrees to pay back.
If you’re in the market for your next, or first, vehicle purchase, make an appointment with a Davey Auto Sales product expert today to get the process started.