What Is Auto Financing, and How Does It Work?
If you’re getting ready to buy a car in Muskogee, Oklahoma, you’re sure to find the model you need here at Jay Hodge Chevrolet of Muskogee. Here at our dealership, we want to do more than help you find the car you want – we’ll help you secure the auto loan you need to drive it home carefree. Auto financing is easy when you count on our experts, so let’s go through the details of the financing process as you prepare to make your purchase.
To finance the purchase of a vehicle, you take out an auto loan from a lender, which could be a credit union, bank, or other source. You’ll then have a period of time to pay off the amount borrowed plus interest, and you’ll make monthly payments until the auto loan is paid in full. To get a better understanding of how financing works, take a look at these common terms:
- Interest Rate: This is the amount that the lender charges you for borrowing their money. The total is a percentage of the actual loan amount.
- Loan Term: This is how long you have to repay the auto loan. Loan terms are generally set for 36, 48, or 60 months.
- Conditions: Your auto loan may come with certain conditions, including rules for paying off the auto loan early or penalties for late payments.
Types of Auto Financing
Lenders have different auto loans suited to various borrower scenarios:
- Secured Auto Loans: You back a secured loan with collateral, and for this loan, the collateral would be the vehicle you’re financing. This allows the lender to repossess the vehicle if you default on payments. It also typically requires a down payment and entails a lower interest rate than an unsecured loan.
- Unsecured Auto Loans: You won’t need to back an unsecured loan with any kind of collateral, and your eligibility is dependent on your credit. This auto loan type often comes with a higher interest rate than its secured counterpart, and it can be a useful means of ownership if you don’t have to borrow very much.
- Auto Refinance: If you’ve improved your credit score since you took out your original auto loan, it might be beneficial to take out a second loan to pay it off with a lower interest rate.
- First-Time Car Buyer Loans: If you’re buying your first vehicle, you might be eligible for a first-time car buyer’s loan, which offers perks like waived application fees or a lower down payment.
Factors that Affect Auto Loan Rates
These factors can influence your auto loan’s interest rate:
- Credit Score: If your credit score is high, then you might enjoy a lower interest rate as a result. Remember that lenders also look at the details surrounding your credit score, including the debt-to-income ratio.
- Loan Term: The length of your loan term can impact your interest rate, as there would be more or less time to repay the auto loan. With a shorter loan term, you’ll have a higher monthly payment with a lower interest rate. Since the interest rate is lower, a shorter loan allows you to pay less in the long run.
- Down Payment: If you make a higher down payment, you might have a lower interest rate since there would be less to pay off. If you have a vehicle that you’d like to trade in, you can use its value toward the down payment as well. Use our Value Your Trade feature to see how a trade-in can help you with your financing.
- Vehicle Age: Since lenders view newer vehicles as less likely to break down, you can often get a lower interest rate on a newer model. If you opt for a new vehicle, you might also be able to take advantage of manufacturer or dealer promotional rates that wouldn’t be offered with an older used model.
How To Determine Your Monthly Budget
By setting a budget for your next vehicle, you can make sure that the model you buy will fit comfortably within your financial means. Common knowledge dictates that your transportation expenses shouldn’t exceed 15 percent of your monthly income, and remember that those expenses go beyond the sticker price. Don’t forget to account for maintenance, fuel costs, and car insurance. To get an idea of what your auto insurance rate would be, ask for a quote from your insurance company.
Get Pre-Approved for an Auto Loan in Muskogee, OK
When you’re ready to get started, you can apply for financing with our secure online form. We make auto financing quick and easy at Jay Hodge Chevrolet of Muskogee, and with a few simple questions, we’ll have the info we need to connect you with the right lender, loan, and rate. Once you’re pre-approved for financing, you can purchase the vehicle you need with peace of mind here at 144 W Shawnee Street, Muskogee, Oklahoma, 74401.
