New Car Financing

For millions of car shoppers, the easiest way to purchase a vehicle is with new car financing. New car financing is a multi-billion dollar industry helping many individuals and families drive the vehicle of their dreams. With cars, trucks and SUV’s costing tens of thousands of dollars, most car shoppers would be unable to purchase these vehicles without new car financing.

Two Types of New Car Financing

There are generally two types of new car financing. The first is to receive financing direct from the car manufacturer you are buying. For instance, if you are buying a GM vehicle, you can usually receive new car financing from GMAC (GM’s lending service). Another option is to go through a private bank or credit union. In most cases a car dealership will put you in touch with a variety of banks that may offer new car financing or you can personally contact banks on your own for financing. Some individuals that belong to a credit union choose to request financing (usually at a lower interest rate) from their credit union.

The Basics of New Car Financing

There are a few basic aspects of new car financing. They include; down payment (or trade in value), term of loan and monthly payment.

Down Payment

Since new car financing is almost always in the form of a secured loan, the car you buy is used as collateral in the case that you are unable to pay the loan off. Since cars lose their value the moment you drive it off the lot, in order to reduce the risk of the loan, many banks and lending agencies require that you place a down payment for the vehicle. A down payment can be in the form of cash or it can be in the form of a trade-in. Trade-ins are a popular way to gain a down payment when you choose to get rid of your old car or don’t have the cash to put down. Since most individuals already own a car, using their old vehicle as a trade-in is practical. Trade-in values depend on a variety of factors, however, type of car, age, mileage, condition, etc play an important role. The amount of a trade-in vehicle is usually set by the dealer, however you can get receive a ball park figure by purchasing a blue book or going online to learn its value before hand.

Term of Loan

The term of the loan is the length that it takes to pay off new car financing. Most vehicles have terms that range from 12 months to 60 months. The most popular terms are 48 months (4 years) and 60 months (5 years). Obviously, the longer the length, the lower the monthly payments, however the downside is that interest costs will be higher.

Monthly Payment

Monthly payments is the amount that new car financing costs each month. They depend on a variety of factors including: total cost of vehicle, down payment, term length and interest rates.