Auto Financing: Important Things to Know

To get the best car financing offer, you should select a vehicle that fits your budget and provide as much down payment as possible. These two factors alone may increase your likelihood of approval, could improve your offer, and will reduce your monthly payment.

Four main factors determine how creditors decide to give you a car financing offer

  • Vehicle selection: cost, age, and mileage
  • Application information: employment, residence, and income information
  • Credit history: information contained in your credit file
  • Down payment: total of cash and trade equity

Factors that affect your monthly payment

Your monthly payment is determined by three major factors (listed below in order of impact):

  • Amount financed
  • Term or length of contract
  • Annual Percentage Rate (APR)

Financing

Whether or not you should finance depends on your lifestyle and priorities in life and your finances.

Financing is for you, if:

  • You don't mind higher monthly payments
  • Prefer to build up some trade-in or resale value (equity)
  • Like having ownership of your car
  • Prefer paying off your loan to become payment-free
  • Don't mind the unexpected cost of repairs after warranty has expired
  • Drive more than average miles and prefer to drive your cars for years
  • Like to customize your cars
  • Expect lifestyle changes in the near future and don't like the risk of possible lease-end charges

Leasing

The short-term monthly cost of leasing for the same car, same price, same term, and same down payment is always 30%-60% lower than the cost of buying, but the long-term cost of leasing is always more than the cost of financing.

Leasing is for you, if:

  • You enjoy driving a new car every two or three years
  • Want lower monthly payments
  • Like having the latest safety features and always be under warranty
  • Don't like trading and selling used cars and don't care about building ownership equity
  • Have a stable predictable lifestyle
  • Drive an average number of miles and properly maintain your car

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