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Vehicle Financing 101

Your guide to vehicle financing

Considerations before you shop:

  • How will you use your vehicle? Think about how you plan to use your car or specialty vehicle. For cars, consider things like interior space, car size, maintenance, and gas mileage.
  • Research vehicles that fit your needs. Whether it’s for a car, motorcycle, or other specialty vehicle, it’s always a good decision to consult a reference guide for general specifications and fair market values:
  • Anticipate all costs. Reference guides can give you MSRPs and market values, but it’s important to consider additional costs when setting your budget, such as fuel costs, registration fees, maintenance, insurance, and repairs. For cars, it’s important to note that used cars typically have lower insurance costs, but higher financing rates than new car loans.
  • Arrange for financing in advance. Once you have a better understanding of your budget, arrange a financing plan before shopping so you can keep negotiations focused and shop with confidence.
  • For cars, determine if you would like to buy or lease. Depending on your goals with your next vehicle, you should explore the opportunities that both leasing and buying can offer.

Lease considerations:

  • Consistent monthly payments for the term of lease
  • Enjoy a new car every few years if you continue leasing
  • Limited trade-in hassle when lease ends
  • Can only drive the car within set mileage parameters to avoid potential penalties
  • May need to pay additional fees upon car return

Purchase considerations:

  • Freedom to do what you want with the car
  • Once the loan is paid off, you own the car outright
  • Keep the car for as long as you like
  • Higher maintenance fees as car ages

And if you’re currently leasing a car, explore the option of a lease buyout.

If you want to keep the car you plan to lease after its lease term, look into lease buyouts. You may be able to get a used car loan to purchase the leased car.

Understanding the mechanics of your vehicle loan may help you establish a successful and manageable borrowing strategy.

Benefits of financing before shopping

  • You can keep negotiations focused on the actual price of the vehicle, not just on monthly payments, because you know your terms going into the purchase discussion
  • You can accurately anticipate what type of rate, fees, and monthly payments to expect
  • You are able to review loan documents at your own pace and get to shop like a cash buyer

Considerations before signing

  • Interest rate. Confirm the annual percentage rate (APR) of your loan. Determine if the loan has a fixed rate (monthly payments and rate remain the same) or an adjustable rate (monthly payments and rate can change). Your interest rate and monthly payments will depend on your credit, your income, and your vehicle preference. Interest rates on new vehicles are usually lower than used vehicles.
  • Total amount financed. Be sure the amount on your loan documents is the same as what you asked for. Consider local taxes when determining the total dollar amount to be financed. Check your county and state website for more information on local taxes.
  • Your monthly payments. Make sure your monthly payments can be maintained within your monthly budget.
  • Any potential penalties. Find out if you can pay your loan off early without paying a penalty. If you can’t, find out how much extra you would pay.
  • Possible hidden charges. Credit insurance or other fees may be included in your loan. Consider paying for these services only if you need them.
  • The length of your loan. Car loans generally range from 36 months to 60 months. Longer terms can lower your monthly payments but could cost you more over the life of the loan.

Increase your likelihood of approval

Knowing your credit score will help you plan a realistic approach toward financing your next vehicle. While you can still get approved for a loan with a lower credit score, you may have a higher interest rate.

If this is the case, or if your credit score is too low for approval, consider signing with a co-applicant. A co-applicant is an individual that enters the loan with you, and may maintain part ownership of the vehicle under that loan so you can potentially get approved.

Before you apply, you’ll need to gather the following information. This checklist applies to co-applicants as well.

Personal and contact information

  • Date of birth
  • Social Security Number
  • Marital status
  • Citizenship status
  • Email address
  • Home address
  • Home phone number
  • Previous address (if at current address less than 3 years)
  • Residence status (own or rent)
  • Monthly mortgage or rent payment

Employment and Income Information

  • Employment status
  • Employer name
  • Occupation
  • Work phone number
  • Previous employer (if at current employer less than 3 years)
  • Gross monthly income amount and income sources

Other Information

  • Year of vehicle
  • Make and model
  • Mileage of vehicle

Considerations when buying a new vehicle:

  • Aim for the vehicle you really want within your price range. If there is a color or feature you’re interested in, but the dealership doesn’t currently have it, you may still be able to get the model you want. Dealerships often have the ability to obtain the specific models not currently in their inventory, and it shouldn’t cost more money.
  • Test drive the vehicles you’re interested in. If possible, drive the vehicle in different environments to see how it performs and if you feel comfortable operating it.
  • Explore promotions and manufacturer incentives. Be sure to ask about current and future promotions and offers that may lower the price of the vehicle you’re interested in.
  • Make sure you fully understand the offer. Check the details and the fine print before committing to anything, especially if the offer seems too good to be true.
  • Examine the manufacturer’s warranty, and consider an extended service contract. If you’re planning on keeping your vehicle for a long time, it’s important to consider long-term coverage to maintain its reliablity and retain its value.
  • Give yourself time to evaluate your options. Carefully spend time at the dealership examining the vehicles you are interested in and are within your budget. Try to avoid making a quick decision and consider all available options.

Considerations when buying a used vehicle:

  • Take time to inspect the vehicle during daylight hours. Viewing the vehicle during the daytime with a dealer or private party gives you the opportunity to take your time to examine it clearly and comprehensively, giving you a better chance to see any potential blemishes, damage, or issues.
  • Test-drive in all conditions. Make sure the vehicle performs as it should in a variety of potential conditions. For example, test a car or motorcycle on the highway and in slower residential areas.
  • Use services like to examine the vehicle’s history. Find out the vehicle’s service records, how many previous owners it’s had, and if it has ever been in an accident.
  • Have a mechanic inspect the vehicle before buying. If possible, take the vehicle to a trusted mechanic before you purchase. Make your offer contingent on a successful inspection.
  • Look into certified warranty pre-owned programs. See if the vehicle manufacturer offers a certified pre-owned warranty for your used vehicle.

Considerations when buying a car from a private party:

  • View the vehicle in a neutral, public space. Oftentimes, the third party is an unknown person to the buyer, so it is a good idea to meet in a public space in plain sight.
  • Ask to see the private party’s current vehicle registration. Find out if the private party has proper ownership of the vehicle and if its registration is paid and up to date.
  • Make sure both parties have all appropriate paperwork. There is a lot of paperwork involved with buying a vehicle, so when you are purchasing from a third party, you may want to contact your local department of motor vehicles prior to the purchase so you have all necessary forms and information.
  • Look for an opportunity to negotiate. While negotiations are common with most vehicle purchases, you may have more flexibility to negotiate with a private party.
  • Pay with a cashier’s check. If you aren’t financing with a private party auto loan, avoid paying a private party with cash or personal check to safeguard your personal security.
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Contact an Auto Loan Specialist today at 1-877-590-7776