When you finance a car, you are essentially taking out a loan. You can borrow money from the bank, financing firm, or car dealers that finance car financing. You can also use dealership financing, where the dealer facilitates the loan through the financial institution with which it works.
In any case, you would typically make a down payment before repaying the debt in monthly installments over a predetermined term, anywhere from 24 to 84 months. The lender may charge processing fees that are added to the loan amount, and interest is made into the payments. Your credit score and other factors determine your interest rate. Higher credit scores may result in lower rates and vice versa.
Car financing may be a good idea if:
- You want to buy a newer car that you won’t be able to afford in a sufficient amount of time.
- Because the interest rate is low, the additional costs will not significantly increase the vehicle’s overall price.
- The regular payments will not put additional strain on your current budget.
- Low monthly payments will free up cash for other necessities.
- You’re confident you’ll be able to make the payments on time.
- You want to improve your credit score by taking out an installment loan.