What is Car Finance?

Car finance is what you use to buy a vehicle by borrowing money and paying it back with interest over time. Car loans are available at banks, credit unions and online lenders as well as at dealerships. If you choose to go with dealer financing, ask whether they have a competitive offer and compare rates and loan terms before agreeing to it.

The loan amount — what you borrow to purchase a vehicle — the annual percentage rate, or APR, and the loan term (the length of time it takes you to pay off your loan) are 3 key things to consider. Using a car loan calculator will help you understand how these 3 factors affect your monthly payment.

Remember, when you take out a long-term loan, your monthly payments will be smaller. However, if you don’t make your payments on time, the lender can repossess your car. It’s a good idea to save for a down payment, and to make your payments on time.

Before you visit a dealer, get pre-approved for a car loan from an online or traditional lender. This will give you a better sense of what you can afford and it may speed up the process at the dealership. It’s also a good idea to ask dealers for a written “out-the-door” price, which is the total cost of a vehicle, including any fees or taxes. This will help you avoid surprises at the dealership and ensure that the total cost of the loan fits within your budget. car finance