Here is all of the vital information that those people who want to know how to finance a car will need.

You need to make sure that you get the best possible terms on your car loan by doing your homework. You will need to know what your credit rating is. You also need to obtain a pre-approved car loan. Having a basic understanding of arithmetic is also very helpful. It is also important to have a history of making your payments in a timely manner. It is also helpful to have some money towards a down payment for the car.

How to Finance a Car Step 1:

Obtain a Copy of Your Credit Report

Request a copy of your credit report. You can get this from a variety of websites, including MyFICO. Most of these websites will provide you with one free copy each year. Auto loans are based on your credit rating, so you will want to make certain that your credit rating is as strong as it could be.

It is highly advisable to have at least 15% available as a down-payment. So if you are buying a car that costs $25,000, you would need to have $3,750. Likewise, if you were buying a used car that costs $10,000, you would need to have $1,500 available for the down payment. By having a down-payment of at least 15%, lenders will be more willing to loan you money, and your financing costs will be diminished.

How to Finance a Car Step 2:

Get Pre-approved for a Car Loan

Before walking into a new or used auto dealership, you need to have your financing in place. You can get this from various websites, or by visiting a credit union, bank, or other lender and tell them that you would like to buy a car and would like to be pre-approved.

If you are financing a car, I recommend using one of the many internet based services for this. One of the best is MoneyAisle.com. They have numerous lenders who will compete for your business. They have a very easy to use website. All you need to do is enter some very basic information, then almost instantly, they will find you the best rates for you, based upon your credit rating.

How to Finance a Car Step 3:

The APR is Critical

When comparing various auto loans (or any loans for that matter), you need to pay attention to the APR, which stand for Annual Percentage Rate rather than focusing on the monthly payment that yo would be making. Provided that you are able to make the monthly payment, it is more important to have a low APR than to have a low monthly payment.

You can obtain a lower payment by extending the payments over a longer period of time. However, we strongly advise that you try to limit your car loan to 3 or at most 4 years. If you financing a car over 5 year or more, you will be paying so much in interest, you may wind up owing more money than the car is worth. This becomes extremely important if your vehicle gets wrecked or stolen.

How to Finance a Car Step 4:

Making The Deal With The Dealer

Make sure to tell the dealer that you already have your financing in place. Then, negotiate the price for the car. DO NOT LET THE DEALER COMBINE THESE TWO TOPICS. Once you have negotiated, and agreed to the price, show the dealer’s credit desk the pre-approved loan that you have. Ask them if they can beat those terms.

How to Finance a Car Step 5:

Crunch The Numbers

Make sure to crunch the numbers before you agree to any financing plan. If the dealer offers you a choice of 0% financing or a cash rebate, you will need to do the math to determine which option is the better deal for you.

How to Finance a Car Step 6:

Make Timely Payments

You have purchased the car. Now make sure that you make your monthly payments in a timely manner. If you are late in making your payment, you will incur additional fees and penalties. You will also adversely impact your FICO score which will hurt your ability to get credit for other things, such as credit cards, other car loans, or home mortgages.

As amazing as this sounds, the average car loan is for 98% of the cost of the vehicle! This is truly amazing. Fewer and fewer people are willing or able to pay cash for their new or used vehicles.

Now you have a basic understanding of how to finance a car.