While buying a new car can be exciting, it can also be nerve-wracking. It’s easy to feel overwhelmed by finance terms and the sheer number of questions you might have. Here are answers to some frequently asked questions that you might have about car financing.
What are my financing options?
When it comes to paying for your new car, there are a few options. If you have enough money set aside, you can pay for your new (or used) vehicle with a single payment. However, most of us don’t have that kind of money lying around. Therefore, a lease or loan will be your best options. A lease functions in the same manner as a loan, with you paying a set fee based on the car’s value for the amount of time you’re using it. On the other hand, a loan is for the full amount of the car’s value (after the down payment). After you pay off the loan amount, you own the vehicle.
What goes into determining a loan’s amount and monthly payments?
There are many factors that go into determining your car loan’s amount and monthly payments. The cost/value of the car is one of the biggest factors, because this is the amount you’ll have to pay back. The size of your down payment also matters. If you pay more in your down payment, then your monthly loan payments will be smaller. Another factor that affects your loan’s monthly payments is the length of the loan. The amount of time you have to pay off the loan impacts how much your monthly payment will be.
What affects my loan’s interest rate?
A necessary part of paying back a loan is paying interest on it. Financial experts refer to interest as the APR or Annual Percentage Rate. There are a few different factors that go into determining this interest rate, with one of the biggest factors being your credit score. The better your credit score, the more likely you are to have a lower APR. Frequently, this amount is “fixed,” meaning that it can’t change.