Basics of Car Financing for Beginners
As a first-time buyer, entering the world of car-financing can be overwhelming. It is the second biggest financial decision you will make when compared to your house. Even though the thought of getting a vehicle is exciting, all the new terminologies can make the whole process look confusing. With lenders or dealerships throwing these words around in normal conversation, you won’t know if you are getting the good or bad end of the deal. Here are five important basics of car financing, every beginner should know:
Annual Percentage Rate
One of the biggest factors which you should use to compare loans is none other than annual percentage rate (APR). It is a percentage that reflects the actual cost of taking a loan from the lender or dealership. Thanks to the way it gets calculated, you can compare this value with other lenders in the market.
The amount financed is the total sum of credit you get from the dealership or lender to purchase the vehicle. Keep in mind that this value is inclusive of the principal amount, along with all the fees which are not part of the finance charges. However, the fees which are included in finance charges won’t come under this value.
Sometimes, the dealership or lender will ask you to get a co-signer, as your credit score isn’t up to their expectations. The co-signer is an individual who takes equal responsibility as the person taking the loan. Due to this reason, the payment history will reflect on both the co-signer and borrower’s credit score.
A credit score is a three-digit number that reflects the risk the lender or dealership has to take to give you a loan. For example, if your credit score is low, the lender is taking a greater risk. Due to this reason, the lender increases the interest rate, to make up for the risk.
The down payment is the sum of money you pay to the lender or dealership to get the car loan. If you make a larger down payment, it decreases the monthly payments of the loan.
These are the five basics of car financing for beginners. If you are looking to take a car loan, but you don’t want the whole process to be a hassle, contact TakeTheDrive today!