Financing 101 in Auburn. NY

Auto Financing at Auburn Chevrolet GMC

Buying a new car can be fun, but no matter how many times you've done it, hunting for the best financing deal is a daunting experience. Crunching the numbers and reading the fine print of an auto loan agreement just isn't the same as test driving a new Chevy model. However, doing your due diligence before you sign the dotted line can improve your car ownership experience. To help ensure you're getting the best financing agreement for you, keep reading for a guide to give you a lesson on the ins and outs of auto financing.

What Is Auto Financing and How Does It Work?

Let's start with what auto financing is. Simply put, auto financing is a way for you to buy a car by borrowing money and then paying it back over time. According to Statista, auto financing is how more than 84% of new vehicles are purchased.

When you finance a car, a bank, credit union, or other lender gives you the money to pay for the vehicle upfront. You then repay the lender, with interest, in monthly installments over a set period. Interest rates, loan terms, and conditions are the core elements of an auto loan.

Interest Rate:

This is the cost of borrowing the money, expressed as a percentage. Loan terms are usually 36 months (three years), 48 months (four years) or 60 months (five years).

Loan Term:

This is the length of time you have to pay back the loan.

Conditions:

These include things like penalties for late payments or rules about paying off the loan early.

Types of Auto Financing

There are many different types of auto financing available, each with its own advantages and disadvantages. Here are some of the most common types:

• Secured auto loans: These loans are backed by the vehicle being purchased, which means that the lender can repossess the car if you default on the loan. Secured auto loans typically have lower interest rates than unsecured loans, but they also require a down payment.
• Unsecured auto loans: These loans are not backed by any collateral, so the lender relies on your credit score to determine your eligibility. Unsecured auto loans typically have higher interest rates than secured loans, but they may be an option if you have bad credit or cannot afford a down payment.
• Lease financing: This type of financing allows you to rent a car for a set period, typically 24 or 36 months. At the end of the lease, you can either return the car, buy it, or lease a new car. Lease financing typically has lower monthly payments than auto loans, but you will not own the car at the end of the lease.
• Auto refinance: This is a process of taking out a new loan to pay off an existing auto loan. This can be a good option if you have improved your credit score since you took out your original loan, or if you are looking for a lower interest rate.
• First-time car buyer loans: These loans are designed for people who are buying their first car. They typically have lower interest rates than traditional auto loans, and they may offer other benefits, such as waived application fees or lower down payment requirements.

Factors that Affect Auto Loan Rates

Several factors can impact your auto loan rate:

Credit Score:

In general, the higher your credit score is, the lower your interest rate will be. However, there are other factors that might be considered, including your debt-to-income ratio and your income.

Loan Term:

Shorter-term loans usually have lower interest rates but may have higher monthly payments since you have less time to repay the full amount. Even though you may be paying more each month, the cost of financing will be lower. That means that at the end of the loan term, you will have paid less overall than if you had a longer term.

Age of the Vehicle:

Newer cars often have lower rates than used ones. Why? Because lenders view newer vehicles as less of a risk. Newer vehicles are less likely to break down. Additionally, manufacturers and dealerships often offer promotional rates for new vehicles that aren't available for used vehicles.

Down Payment:

A larger down payment almost always leads to a lower interest rate, simply because you will be financing a lower amount. In lieu of a down payment, many car buyers choose to trade-in their old vehicle, using its trade-in value as a down payment. Use our value your trade tool to determine the value of your vehicle.

How To Compare Auto Loan Rates

Comparing auto loan rates can save you a lot of money. Get quotes from several lenders, and compare their interest rates and terms. Be sure to look at the annual percentage rate (APR), which includes the interest rate and other loan costs.

How To Determine Your Monthly Budget

Finance experts recommend spending no more than 15% of your monthly income on transportation, including your car payment and insurance. If your monthly net income - the amount you take home after taxes and health insurance - is $5,000 a month, you should be spending between $500 and $750 on your transportation.

After you've created a short list of vehicles to consider, determine their cost of fuel and insurance. Subtract that amount from your monthly budget and that is the amount you can afford to spend on a monthly car note. For insurance, simply get a quote from your preferred insurance company.

How to calculate estimated fuel expenses

1. Multiply the average distance you commute each day by 30 - the average days in a month.
2. Divide this by the mileage of the vehicle you've chosen.
3. Then, multiply that by the current price per gallon. It may be a good idea to add a dollar to the price per gallon to account for fluctuations.

Identifying the Best Auto Loan for You

The best auto loan for you depends on your needs and financial situation. Consider the loan amount, interest rate, loan term, and any extra fees. Also, consider whether the lender offers flexible payment options or benefits for on-time payments.

How to Get Pre-Approved for an Auto Loan

Getting pre-approved for an auto loan can help you shop with confidence. To get pre-approved, you'll need to provide information about your income, employment, and credit to potential lenders. They'll give you a quote for how much they're willing to lend and at what interest rate. This allows you to know what you can afford before you start shopping. At Auburn Chevrolet GMC, simply fill out a quick online application and our finance department will provide you with a list of financing options for you.

And there you have it - Financing 101. We hope this guide helps you feel more confident about navigating the world of auto financing. Remember, understanding your options and doing your homework is key to finding the best auto loan for you. Happy car hunting!