Let’s go for a drive: auto financing basics

Posted by Ne[x]t on 04.15.16

You’re ready to get a vehicle and know what car you want – or maybe you don’t know exactly which car you want, but you have an idea. Either way, unless you’ve inherited a large sum of cash, you’ll probably need to finance your new purchase with an auto loan. An auto loan will allow you to make monthly payments, creating a more affordable vehicle. If this will be your first purchase, you’ll want to do your homework so you can choose the right package to fund your new ride.

1. Check your credit score

Your credit score is a number between 300 and 850 and is used by lenders to determine the risk of lending you money. A higher score will help you receive better rates and other terms. You can check your score and get a free copy of your credit report every 12 months ( Reviewing your credit reports ahead of time may give you an opportunity to correct any mishaps so that you can increase your score before you head out to purchase a car. If you don’t have any credit, it may be difficult to get a loan or could cost more in fees and interest. Try building your credit with a small line (like a secured credit card) so you can establish a score and also get some experience managing credit before making a big purchase.

2. Determine how much you can afford

You’ll want to take a look at your financial situation to make sure that you’ll have enough income to cover your living expenses. If you have a couple thousand dollars saved, you can apply that towards a down payment which will help reduce the amount you pay each month. Play around with numbers with an auto loan calculator to see what your payments might look like. When you finance, the amount you’ll pay each month will depend on factors like the price of the car, Annual Percentage Rate (APR) and the loan term. Keep in mind the full price of the vehicle instead of the monthly payments. Paying $500 a month for 36 months is a much cheaper vehicle than paying $500 a month for 72 months. Just because you have it, doesn’t mean you need to spend it! Other important considerations when it comes to affordability include car insurance, fuel, maintenance and repairs.

3. Choose your lender

Among options to finance your car, you can get an auto loan from financial institutions like Georgia’s Own Credit Union. Georgia’s Own can pre-approve you for a loan so that you’ll know exactly how much you’re qualified to borrow before you head to the car lot. This will help you avoid the salesman pushing you toward an unaffordable car.

4. Choose your vehicle

Once you’ve figured out how and where you’re going to get the money to pay for your new vehicle, the fun part begins – picking out your ride. Try to be practical with what you really need out of a vehicle. Sure, the brand new, top of the line car looks great, but is it what you need? Also, be careful with car dealers as they may try to talk you into a longer loan that will reduce your monthly payment, but will cost you more in the long run. If you plan to buy a used car from a private party, check the restrictions to make sure your loan covers that option.

Need help finding the right car? Georgia’s Own Carfinder is a car buying service through Georgia’s Own that can get you into the perfect vehicle. Simply provide any details you’re looking for and what you’re looking to pay and they’ll help find the car that fits your qualifications. Plus, they’ll even deliver it to your home or office.

If you’re in the market for a new car, don’t wait until you’re at the dealership to start thinking about financing. If you’ve never had the experience of getting an auto loan, it may seem terrifying at first, but it’s really not that bad. These are just the basics of a car loan so if you’re still not sure, don’t be afraid to ask for help. Your parents, family members or friends have probably gone through the process and can help guide you.

Key Car Financing Terms

  • Annual Percentage Rate (APR) – Presented as a percentage, APR is a calculation of the full amount you will pay for a loan over the course of one year. Basically, it tells how much it will cost to borrow money (on top of the actual loaned amount itself). The higher the APR, the more you will pay for a loan overall.
  • Amount Financed – The dollar amount of the credit provided to you from a lender.
  • Credit Score – A number that lenders use to help them decide how likely it is that they will be repaid on time if they give a person a loan. It’s a number between 300 and 850 that represents your credit risk based on information in your credit file.
  • Down Payment – The initial amount you pay to reduce the amount you need to finance.
  • Loan Term –The amount of time in months you’re given to either pay back the loan or renegotiate for another term.
  • Monthly Payment – The dollar amount due each month on the loan agreement.
  • Total Cost – The total amount you will have paid after you have made all the payments as scheduled (includes the price of the vehicle, interest on the loan and any other services you might have added to the loan)


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