Car Financing and How it Works

Unless you are one of the lucky few who can pay cash for a new car, you will likely have to finance the vehicle. There are many options for car financing, and they all work in slightly different ways. It is a good idea to know the ins and outs of the most common types of automotive financing. You do not need to be an accountant or lawyer to comprehend the several most common financing methods.


Many consumers choose to finance through their dealerships, which is fine. Just remember the dealership’s finance agent works on commission, and will try to sell you many extras like undercoating, service plans, etc. As long as you go into the dealership knowing this, then you are probably going to be fine.

Also, be aware that dealer financing does not always offer the best rates for consumers. You can usually get a better interest rate by shopping around at banks and credit unions. Dealerships also tend to front-load car loans, meaning that most of the early payments are made up of interest charges. This is to your disadvantage if you decide to pay the loan off early.

Banks and credit unions almost always offer lower interest rates for car and truck financing. The disadvantage for consumers are slight, when compared to dealership financing. Yes, it is inconvenient to go to a bank, rather than finance right at the dealership. However, you will save a significant amount of money in the long run by getting even a slightly better interest rate on the loan.

Once finances, be sure you take steps to care for you new investment. A car warranty is well worth the cost in almost every case. An auto warranty is one of the best ways to protect your vehicular investment. Not only does it allow you to keep the car in top working condition, it lets you do so at reasonable rates.


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