What is financing a car mean

If you haven't got enough in savings to buy a car, but you can afford to repay a loan in monthly instalments, you may want to consider taking out a car loan to finance your new set of wheels. A car loan allows you to borrow a certain amount of money to buy a car. In return for the loan, you pay interest to the financial institution that lent you the money. You need to pay back the loan within a certain period of time called the term which ranges from three to five years at loans.

This is the amount of time over which you agree to pay back the loan, usually in monthly installments. In addition to repaying the amount you borrow, you will also be charged interest. You can try our car loan calculator to work out approximately how much your car will cost you over the term of your loan. As you can see, there are several components which make up a car loan. We'll cover these in more detail below. Interest is the biggest cost of a car loan, so it's the first thing you should look at when considering a car loan.

The interest rate will be expressed as a per annum figure, calculated regularly on the outstanding loan balance. Before borrowing money for a new car, you should always know what the interest rate is and compare car loan rates being offered by a number of different lenders. At loans. The loan period or term at loans. A longer term essentially means you'll be paying off the loan for longer, but your monthly repayments will be smaller.

You will pay more in total interest though. Car loans are most commonly paid off monthly, but you can ask your lender if they will allow you to make weekly or fortnightly repayments if that suits your financial situation better. Making more frequent repayments can help you pay off the loan a lot sooner and with less interest.

There are several other fees you could be charged that can add significantly to the loan amount. A lot of car loan borrowers opt to have a balloon payment in the loan. A balloon payment is an agreed upon lump sum that is paid to the lender at the end of the loan term. Borrowers who want smaller, regular repayments can opt for a balloon, but over the life of the loan their total interest costs will be higher. You need to get a car loan from somewhere, and many of the points above will influence which lender you choose to go with.

There are three main options when it comes to buying a car on finance. Firstly, you can take out a car loan through the car dealer. While dealer finance can be convenient, and requires no planning, their car finance rates are often higher.

This can add significantly to the overall cost of the loan. Another way is through a bank. Finally, you can apply for a low-rate car loan from an online lender. The key to making use of a low-rate car loan is to get pre-approval from the lender before you go the the car dealership.

This allows you to resist any pressure from the dealer to use their finance. Some dealers and lenders may ask you to buy credit insurance that will pay off the loan if you die or become disabled. Check your existing insurance policies to avoid duplicating benefits.

Credit insurance is not required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the APR. Ask questions about the terms of the contract before you sign.

For example, are the terms final and fully approved before you sign the contract and leave the dealership with the car? Does the price on your contract match what the dealer sent you ahead of time? Consider waiting to sign the contract, and keeping your current car, until the financing has been fully approved. Know how leasing is different than buying. The monthly payments on a lease are usually lower than monthly finance payments if you bought the same car.

At the end of a lease, you have to return the car unless the lease agreement lets you buy it. You can use the Bank of America auto loan calculator to see how different loan amounts, APRs and terms will affect your monthly payment. Also, look for a car loan with no prepayment penalty. This will save you money if you decide to pay off your loan early or refinance your car loan.

Most people think of auto financing as taking out a loan to buy a car, but leasing a car is another popular form of car financing. You may or may not have to make a down payment, sales tax is only charged on your monthly payments in most states and you pay a financial rate called a money factor that is similar to the interest rate on a loan. You may also have to pay special lease-related fees and a security deposit. You may have an option to buy the vehicle at the end of the lease period, but this will typically cost more than if you had purchased the vehicle to begin with.

You also have to be keenly aware of how many miles you drive most leases charge a per-mile fee above an annual number of allowable miles and you need to keep very good care of the car most leases will charge you for wear, tear and damage at the end of the lease period.

If, at the end of the lease period, you are interested in keeping the car, you may be able to purchase your vehicle with a lease buyout. If you currently have a car loan, you may want to consider refinancing into a new loan in order to lower your monthly payments. Use the Bank of America refinance calculator to compare your current loan with a potential new loan to see whether refinancing may be right for you.