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Understanding Car Financing

Understanding Car Financing

Generally, most people don’t purchase new vehicles outright; they finance them, meaning, they get a loan from one of a variety of lenders and pay off that loan over a designated period of time, this period of time is referred to as the term. Financing a new vehicle with a dealership or bank is common, but exactly what goes into determining your car loan? credit score, credit score range, credit score tiersYou can expect potential lenders to look at: Your credit score—People with higher credit scores are more likely to get approved for auto loans and be eligible for lower interest rates. Your ratio of debt to income—Your debt-to-income ratio is how much money you owe in debt compared to the amount of money you earn. The size of the loan and the down payment—Typically, a larger down payment lowers the size of the loan, and helps you get lower loan payments, too. The length of the loan—For how many months do you want to finance your vehicle? This can determine the amount of your monthly vehicle payments.

Auto Loan Financing Options

Many buyers—especially those purchasing their first vehicle from an auto dealer—believe getting a loan with the dealership is their only option; while this is a common option, it isn’t the only one. Below are several ways buyers can obtain car loans, along with a few of the advantages and disadvantages of working with each type of auto lender.


Again, it’s common to finance a vehicle with the help of a dealership; in fact, it’s probably the most convenient option. Once you decide on a vehicle, you can both buy and finance it in one day. Your dealer will arrange all of your auto loan financing requirements for you. Plus, you might get better financing rates than you would with another lender.


Generally, getting a car loan through a vehicle manufacturer means working with the dealership to take advantage of special financing deals offered by the manufacturer itself and not the dealership. Sometimes, you’ll see commercials and other advertisements for manufacturer financing offers, or your car salesperson will tell you about them. Of course, it’s always wise to ask a Tristate Auto Champs expert about these offers, too.


For many of our clients, getting an auto loan from a bank is the best option—especially if you work with a bank with which you already have a relationship. Oftentimes, a bank can offer lower interest rates and shorter loan terms, which in return will save you money and allow you to get a new car sooner. The only downside to getting your own financing, is that it’s more involved. You will have to get documents from your salesperson, send them to the bank, and be the middle man.

Credit Unions

Working with a credit union is similar to working with a bank; in fact, some people use credit unions for all their banking needs. Just like working with banks, getting pre-approved for an auto loan from a credit union means you know your financial terms and conditions upfront, before you even step onto the lot. However, even though credit unions generally offer lower loan rates than do banks, there are occasions when credit union interests rates may be higher. Be sure to contact us for a free consultation to fully understand the loan interest you’ll have to pay before you sign on the dotted line.