If you’re in the market for a new vehicle, you have a few different alternatives.
Some car buyers opt for leasing. This enables customers to drive the car of their choosing while making agreed-upon monthly payments. However, unless you enter into a “lease to own” agreement, you will not end up owning the vehicle. This is similar to renting an apartment, except that it is for a car.
If you want to acquire a car but cannot afford to pay for it entirely, you can finance it. This is a preferable alternative for individuals who wish to retain full ownership of their vehicles once their planned monthly payments are completed.
Here’s everything you need to know about vehicle financing.
What is financing a car?
When you finance an automobile, you obtain a loan to fund the purchase and then repay the debt over time. As is the chase with other forms of loans, you must agree to repay the principal amount borrowed plus interest and fees. To keep your auto loan in good standing, you’ll make planned payments to your loan financier, typically monthly.
You may finance a car through virtually any financial institution. While banks such as Chase offer car loans, they are also available through credit unions, online lenders, and manufacturer financing groups.
To qualify for loans, the financial service provider will run a credit check and calculate your credit score. If you have a good credit score, you will have a better chance of being approved for a loan and may also qualify for a cheaper interest rate on your auto financing payments. If your credit score is low, it does not always mean you will be denied a loan; nonetheless, you may be required to pay a higher interest rate.
If you’re unsure of your credit score, you may obtain it for free with Chase Credit Journey. You can enroll in a free service that will notify you whenever your credit score changes.
Before you agree to the terms and conditions of your loan, lenders must supply you with them. It is critical that you properly study this information so that you understand what is expected of you and how much you will be required to pay each month.
This procedure can appear difficult at times. However, if you do it step by step, it’s simple. Additionally, when you shop for vehicle financing via Chase, you can shop for automobiles, manage your vehicles, and receive financial assistance all in one location.
We’ll discuss how to finance a car in greater detail below, so you can make an informed decision regarding your vehicle purchase.
3 reasons why bank loans may be better than dealer loans
When shopping for a car loan, you normally have two options: one through the dealership’s financing department or one through a financial institution such as a bank. In many circumstances, a bank-financed car loan is a superior option.
1: A bank will not pressurize you into purchasing a car.
It’s far too simple to visit a dealership, fall in love with a vehicle, and make an emotional choice to purchase it immediately without considering financing possibilities. Dealers may even coerce you into financing with them in order to close the deal and earn revenue for arranging the credit.
Dealers may also offer special automobile prices or loan terms if you finance through the dealership, or they may utilize strategies such as loan term extensions to reduce your monthly payment (though you’ll likely end up paying more interest throughout the loan’s life).
You may help alleviate some of the strain and stress associated with your decision by searching for a loan and applying for preapproval with a variety of lenders, including banks, prior to visiting a dealership.
2: A bank can authorize you for a car loan in advance.
Certain banks allow you to apply for preapproval for an auto loan. If you are preapproved, the bank will inform you of the loan amount, interest rate, and terms for which you have been conditionally approved.
Bear in mind that preapproval does not guarantee loan approval or that you will receive the same anticipated interest rate and terms—you must still complete and submit your loan application. However, it can provide you with an indication of the terms you may be accepted for by multiple lenders, allowing you to shop around for the best offer.
It’s worth mentioning that some automakers’ finance companies also allow for preapproval, but you’ll be confined to purchasing an automaker’s vehicle. For instance, if you are preapproved for a loan through Lexus Financial Services, you may use the loan to purchase a Lexus only at a partner Lexus dealership.
How to obtain preapproval
You may be able to apply for preapproval online, over the phone, or at a branch, depending on the bank. You’ll almost certainly be asked for some personal information, such as your Social Security number and birthdate, as well as information about your employment and income. The bank may conduct a hard inquiry on your credit, which may result in a few points being deducted from your credit rating.
Wait to begin the preapproval procedure until you’re certain you’re ready to begin browsing for a car loan. Multiple hard credit queries during a 14-45 day period will count as a single inquiry, so it makes sense to conduct them at the same time.
Once you’ve been preapproved and identified the loan that best meets your needs, you can bring your preapproval documentation to the dealership.
The advantages of pre-approval for a car loan
Preapproval might benefit you in a number of ways at the dealership. To begin with, you can shop at the dealership as a cash buyer. Inform the salesperson that you’re looking into alternative financing; this way, you can avoid discussing it and instead focus on negotiating the price of the automobile you want to buy.
The dealer may attempt to outbid your preapproval offer in order to win your business. If they do, financing through the dealer may be your best alternative. However, you will never know unless you conduct preliminary research by obtaining and comparing anticipated loan offers from multiple lenders.
Additionally, knowing how much you’re preapproved for will help you avoid overspending. The preapproval amount establishes the maximum amount that you may spend (unless you have some extra cash stashed away). You can use this maximum to walk away if the dealer is unwilling to negotiate or to decline upsells.
3: A dealer may charge a premium for interest rates.
With dealer-arranged financing, the dealer basically shops for you, getting quotes from several financial institutions such as banks, credit unions, and the automaker’s finance company. However, the dealer has the option of increasing the interest rate on the loan they provide to you.
This markup compensates the dealer for financing the vehicle and may result in your spending hundreds or thousands of dollars extra over the loan’s term. According to the Center for Responsible Lending’s November 2015 report titled “Road to Nowhere: Car Dealer Interest Rate Markups Lead to Higher Interest Rates, Not Discounts,” lenders may allow dealers to add up to 2.5 percent to the interest rate.
Consider the following scenario: A lender quotes a 4% interest rate on a $30,000 loan with a 60-month term. You’d pay an estimated $3,150 in interest throughout the term of the loan. However, if the dealer increased the interest rate on that same loan to 6.5 percent, you would end up paying an estimated $5,219 in interest-a difference of more than $2,000 in interest.
If the dealer gives you a rate that is much higher than your previous auto loan rate projections, consider negotiating the rate with the dealer.
How do you finance a car? | Chase Bank
Historically, financing an automobile required a visit to a dealership. After you’ve chosen your vehicle, the dealer will assist you in obtaining financing through a lending institution, which is typically a local or national bank or the manufacturer’s financing group.
Automobiles can now be purchased and financed online. Before you do, here are a few precautions to take.
1. Check your credit score
Before you begin shopping for a loan, it’s a good idea to know your credit score. You can check your credit score for free via Chase Credit Journey. Additionally, you are entitled to a free annual credit report from annualcreditreport.com (Opens Overlay), the government-mandated website that provides free credit reports.
To take the guessing out of vehicle finance, it helps to have a firm grasp on your borrowing capacity. Chase facilitates this process with its prequalification tool. Enter some basic information to find out how much money you can get for a car loan.
Bear in mind that this is not a loan application or a commitment to lend.
3.Find the car you want
Concentrate now on the enjoyable part: finding your new car!
You can look for cars in person or online with Chase. You may browse Chase’s online inventory from the comfort of your own home, which includes a feature that assists you in locating your perfect car by simply answering a few questions.
Chase Auto provides this service in specific markets through dedicated dealerships. This service connects you with a professional dealership staffer who will walk you through the whole car-buying process.
4.Apply for financing
Once you’ve located the vehicle you like at a price that fits your budget, you can begin the financing process.
Numerous lenders, including internet lenders, are available to finance your purchase. However, you can apply for a car loan directly on the Chase website. To get started, simply visit the Finance a Car page and click “Apply today.”
While personal loans may appear uncomplicated, there are numerous reasons to choose car finance, not the least of which is that it is typically less expensive. Yes, you will typically be required to make a deposit, but this means you will borrow less money, which results in cheaper monthly repayments.
Dealers enjoy it when clients sign up for their vehicle finance plans since they earn more money, and many buyers renew their contracts when their initial term expires. They regularly contact you far before your first contract expires and offer to change you to a new automobile if possible, which keeps you signed up for an additional period of time.
As a result, they provide extremely attractive financing options, frequently at lower interest rates than comparable personal loans, which further decreases the monthly cost.
The disadvantage is that many auto finance contracts feature mileage restrictions, which require you to pay an additional fee per mile if you exceed them. Additionally, you do not fully own the vehicle until all financing is paid off, and it is not usually easy to exit the contract early without incurring a termination fee.
Certain methods of automobile financing are more adaptable than others. Our vehicle finance guide delves into the most common types, so you can understand exactly what each one entails.
Whichever method of financing you pick, make certain you understand the actual amount you will pay-both monthly and cumulatively–as well as the contract’s explicit terms and conditions. The annual percentage rate (APR) and a detailed breakdown of the charges must be made public by any business that provides consumer financing, so make sure you have these before you sign up.
If you’re contemplating financing a car, be sure to visit our complimentary New Car Buying service, where What Car?-approved dealers can present you with tailored loan offers.
Bottom Line :
If you’re looking for a car loan, don’t make an emotional decision without considering financing possibilities. Dealers may try to coerce you into financing with them in order to close the deal and earn revenue for arranging the credit. A bank will not pressurize you into purchasing a car. You may be able to apply for preapproval online, over the phone, or at a branch of your bank. Wait until you’re certain you’re ready to browse for a car loan before shopping for financing through a dealership.
Preapproval can benefit you in a number of ways, including by allowing you to shop around for the best deal. Lenders may allow dealers to add up to 2.5 percent to the interest rate. This markup compensates the dealer for financing the vehicle and may result in your spending hundreds or thousands of dollars extra over the loan’s term. The Center for Responsible Lending’s November 2015 report led to higher interest rates. Dealers enjoy it when clients sign up for their vehicle finance plans since they earn more money, and many buyers renew their contracts when their initial term expires. Our vehicle finance guide delves into the most common types, so you can understand exactly what each one entails.