How Does Financing a Car Work?

What does it mean to finance a car? The car financing process is the means by which many drivers purchase their vehicles, and here, “Financing” is essentially shorthand for: Taking out a loan and creating a plan to pay it back while you drive!

How does financing a car work? If you’re not sure where to start, don’t worry. The financing team at Land Rover Monmouth is here to help you get a handle on everything that you need to know to move forward.

What is Financing a Car?

Financing might be used as a verb to mean “taking out a loan,” or as a noun, to mean, “the money required to make your purchase.” Both words point toward the same process, but if you’ve ever wondered “What is financing a car?” we understand where your confusion could have come from.

Now, let’s take a look at the steps involved in the process, so you can get a better sense of how car finance works! We’ll go over:

• How to make your loan applications
• How to select a lender
• How to finalize your loan terms

How Car Finance Works: Making Your Application

If you don’t have enough money saved up to purchase your desired vehicle outright, you’ll need to secure a loan to make your purchase. Once you’ve calculated your monthly payments and figured out how much you can afford to borrow, it’s time to make your applications.

Even if you’re asking for a set amount, the likelihood of your approval, and the terms that you’re offered, will vary depending on where you go. That’s why it’s smart to make multiple applications, and compare offers. Just make sure to complete all applications within a 14-day window. Otherwise, you could see a negative impact on your credit score.

How does financing a car work if you’re struggling with bad credit or no credit? We can help you there, too.

How Car Finance Works: Choose Your Lender

No matter where you apply, the lender will look at your credit score, the amount of the loan, the length of the loan, and your debt-to-income ratio. They also generally look at the age of the vehicle, because an older model might expire before you have the chance to complete the term.

Let’s say you apply for a loan at the auto dealership, and at a local bank or a credit union. Let’s go on to say that both offered you a loan! How would you go about choosing between them?

• If you know anything about what it means to finance a car, you probably know that getting a lower interest rate will save you money every month.
• However, you should also look at the loan term. If a lender offers you a lower rate, but a longer term, you might end up paying more anyways!

As you make payments on time, your credit score may improve! In these circumstances, refinancing your auto loan can help you secure a lower monthly payment.

How Car Finance Works: Finalize Your Loan

You’re not out of the woods yet. Before you sign on the dotted line, you may be able to play one lender off of the other, or negotiate on price. Since you’ve already been approved, the vehicle seller is more likely to take you seriously, whether you’re asking for a discount. And, if you can show that one lender is willing to offer you a better rate, the other one may offer you a better deal just to secure your business.

Once you’ve spent a little time negotiating and asking questions, you’re ready to finalize the loan terms and seal the deal. Remember to consider upgrades, options, and additional protections carefully. It’s often possible to get a better deal by buying insurance at this stage, but you don’t want to get bogged down with add-ons. You may want to learn about liability insurance coverage before you move forward.

Get Started Today!

If you’re ready to take the next steps with a new or used vehicle in our Land Rover inventory, reach out to our financing team today. You can even secure financing using our convenient online form!