How Financing Works

When you purchase a new vehicle you must first look at how much money you will put down (typically the  higher the down payment, the more creditable you look in the eyes of the financing source). A down payment of a couple thousand dollars or more in the form of cash, factory rebates, and/or trade-in is suggested to help lower hefty interest charges on the money borrowed for the vehicle. If you are trading- in a car, research its market value at www.kbb.com or take it to a few used car dealers to get an accurate amount of its worth.

Often finance terms run around 4 or 5 years, (this is the amount of time you have to pay off the loan to obtain the title of the vehicle). Importantly, while you are paying off your car loan the vehicle is officially titled to your financing source. If you fail to make the monthly payments they can legally repossess the vehicle from you.

 Often manufactures offer special financing on different vehicles lines periodically and recent college grads are usually given reduced finance rates and special cash offers. However your credit rating will play a heavy factor in determining your applicable finance rate.

• Ownership - Unlike leasing, financing gives you the satisfaction of owning your vehicle. There are no restrictions on the amount of miles you can drive or modifications you can make to the car; however, these factors will affect its market value. For those who prefer to spend their money in return for an asset, financing may be the best option.

• Longer Trade Cycle - You can keep the vehicle as long as you want. If you are not excited by the fact of driving a new car every other year, leasing may not be as beneficial for you.

• Credit History - By paying off a car loan you will exhibit creditworthiness and responsibility. An established credit history will come in handy when you go to buy other big ticket items such as a house.

• Ownership - As your vehicle goes out of warranty you will be responsible for all needed repairs, which can quickly add up.

• Affordability - With leasing you can afford to get into a more expensive car as compared to financing. Therefore, you will have more out of pocket expense with the monthly car payment, which will force you to drive what you can afford.

• Design Changes - Your new car may look out- dated in a couple of years causing you to want the newest model. Based on your monthly payment and condition of the vehicle, you may pay dearly if you try to trade it in early due to negative equity.