How Car Financing Works

how financing works

If you have ever bought a new car before you probably have a pretty good idea how financing works. Or do you?

Think Before You Sign

Most car buyers never think twice about the financing options they are offered at the dealership. They take whatever is offered, sign away their rights and agree to a series of things they don’t need but think they do because the salesman or financing agent at the dealership, told them they do.

When it comes time to finance your next car do yourself a favor and shop around for the best deal.

Consumers don’t think anything of driving two miles further down the road to save fifty cents on a gallon of milk, but they won’t budge from their seat at the dealership to get a better deal on financing.

Little Extras Add up Quickly

Dealerships make the majority of their money from the little extras they tack on at the end of the deal, after you agree on a price for the vehicle. The undercoating, security system, stereo and navigation system they offer to add on.

Dealers also make a bigger profit off you than they would care to admit. They get rebates from the manufacturers which they could offer you, sure, but they also get discounts for selling certain vehicles which they usually don’t offer buyers.

No one sells cars for free, it wouldn’t make any sense at all. Paying cash for a new car is not an option for most

of us. If you can save more on interest than you would earn if you put that money in a savings account than it is definitely a good idea to pay cash for it. If not, or if you just don’t have the cash on hand to pay for your car in full you are just like most people. That doesn’t mean you let yourself get ripped off, however.

Everybody Wants to Make Money

Financing comes down to money. The lender wants to make money, and they will from the interest they earn off you in the form of monthly payments. The term you set for your loan also has a lot to do with how much money they will make. Sure, you can lower your payments by extending the life of your loan, but in the long run you will pay more in interest so you really are not saving yourself any money at all.

Put More Money Down

You can also lower your payments by putting more money down on your vehicle. This is always your best option because it shows the lender you have a vested interest in paying off the loan and that in turn should result in a better interest rate and lower monthly payments.

Do Your Homework

When it comes time to finance your next new vehicle do yourself a favor and do your homework. Compare vehicle prices, compare financing options and don’t sign anything or buy anything you are not absolutely sure you need.


Category: Personal Finance

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