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Understanding the Basics of Auto Financing

The overall price of vehicles, both new and used, has reached the point where most people must apply for auto financing to make a purchase. However, many consumers do not feel comfortable with the typical car loan process that has been presented to them. This is usually due to the widespread variety of:

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Car Loan Companies

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Lending Options

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Credit Score Types

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Financial Requirements

These are all things that tend to intimidate a first-time car buyer or even an experienced buyer, but they don’t have to. Federal Auto Loan is fully capable of helping people experience both a quality and worry-free vehicle loan process: having done so for many years.

Tips when Requesting a Car Loan

If you have bad credit, there are a few things you should know before you go on the internet to request an auto loan. First and foremost, you should know that you are in control: you drive the process. There are dealers across the country who will want to compete to sell you a car.

Not long ago, only a handful of reputable dealers catered to those with poor credit. Today, thousands of dealers are capable of helping consumers with credit troubles. Due to the increase in demand, both from consumers (with bad credit) trying to purchase a vehicle and from dealers competing for extra sales, a new middle man has surfaced, the internet marketer (consumer connections company).

How can you tell if you’re dealing with a Brick and Mortar Company or a Consumer Connection Company? And, how do you know who to trust with your information?

Rule Number One

For consumer connection companies, everything is a give and take: if you give something up, expect something in return. When visiting a website, consider it online bargaining in real time. What are you giving up? Your name, social security number, date of birth, and/or monthly income? Before giving up your personal information, what should you know?

The Truth
  • Does the site have any third-party reviews?
  • What are the minimum recommended requirements?
  • Does the site have a way for you to get in touch with them?

The website should offer a physical address at a minimum. A reputable company will have a physical address. Do some research. If they provide a number, call it to see if you get in touch with the company. If they have a contact page, consider using it to see what response you get. Do you get a response? If you do, is it full of misspellings and other extraneous characters? These are all things to consider when looking for a reputable consumer-connection company.

Rule Number Two
Watch for scam-like activity on their site.

Do they have invasive advertising that pops up all along the screen? This raises questions as to what exactly they’re selling and how do they make their money. If they’re a credible business offering business/service connections, then their focus should be on providing those connections for consumers, so that their affiliates pay to receive qualified potential consumers.

You should also check for legal documents. Do they offer a privacy statement declaring how they will use your information? And do they have a usage agreement dictating exactly what their service is and does and how that relates to you as a user. If they don’t list these on their site (typically found in the footer), you may want to reconsider using them.

Rule Number Three
Trust third party results.

The last step in the process is to visit a trusted authority, like the Better Business Bureau, to see if the company is listed and what its rating is. Oftentimes, a reputable company will have a BBB logo on their site. When you see the logo, you should go a step further and check to see if they’re actually listed with the BBB as a BBB company. You can also check their rating then.

To recap, be sure to follow these simple rules before you turn any of your personal information over to anyone. Make sure that:

  1. There is way to contact the business if you have questions.
  2. The business website offers legal documents and doesn’t feature scam-like characteristics.
  3. Get third party validation.

Do these things and you are more likely to eliminate troubles, dissatisfaction, and scams. Also, remember to never put your personal information in the hands of someone you don’t know or trust.

What are the Average Terms associated with Vehicle Financing?

The length of a car loan determines how long it will take for you to repay your finance contract. A lender will usually offer car loan terms for 36-72 months, meaning that you have three to six years to repay the price of the vehicle plus interest to the lender. The interest rates and loan terms offered vary and are based on a number of factors, including the initial down payment and credit scores.

It’s important to realize that your auto financing term also plays a role in determining your interest rate, and therefore, how much your monthly payment will be. For example, a typical 60-month loan term will carry a higher interest rate than a 36- 48 month loan, but it will also come with lower monthly payments. As a buyer, you’re able to finance a more expensive vehicle with the payments spread out across a loan term. Yet, most finance companies will recommend that people select a shorter loan life.

This recommendation is essentially due to the fact that there are a number disadvantages to long term financing, such as:

  • Increased risk of going “upside down” on your loan.
  • Loss of equity in a new vehicle.
  • More interest being paid over the loan term.

How Your Credit Score Impacts Auto Financing

Your recent credit performance is one of the most important things that a dealer looks at when it comes to financing a vehicle. Plain and simple, loan companies place a high level of importance on down payments. This stems from their need to recover some of the balance on the loan, in the event that the borrower defaults. This can really become important if your credit report shows instances of:

  • How much debt you’ve acquired.
  • Your payment history.
  • How long your line of credit has been in use.
  • Your total major debt.

All of these factors are used to assess the likelihood of you repaying the principle loan. It also largely impacts the interest rates you’ll receive. Those who have low credit scores are often viewed as high risk borrowers and, if approved, will face higher than average rates.

Without a down payment, it’s also much more difficult to qualify for auto financing if you have bad credit. For borrowers with credit problems requiring a vehicle, they are usually required to have either a cash down payment or an equity trade-in. These forms of up-front payments can help influence a lender to approve your application, while also lowering your monthly payments.

What to Do When You Have No Money Down for an Auto Loan?

The requirement to make a down payment, on either a lease or a loan, is another factor that effects car buyers. Most people would prefer not to give additional money to the lender – to have for future expenses. However, getting a no money down auto loan is difficult to do if you are applying for vehicle financing, and nearly impossible if you have credit problems.

You must understand, loan companies place such a great level of importance on down payments, this stems from their need to recover some of the balance on the loan, in the event that the borrower defaults. This can really become important if your credit report shows occurrences of:

  • Repossession
  • Late payments
  • Missed payments
  • No established credit
  • Bad credit scores
  • Bankruptcy

By putting money down on a car loan, you are basically trimming off part of the original price of the automobile, which makes it easier to own the car with the monthly payments being reduced. Leasing cannot offer you this same option because down payment does not position you closer to ownership, but helps to lower your monthly installments.

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