What Is the Smart Way to Finance a Car?

What is the smart way to finance a car?

Financing a vehicle isn’t necessarily difficult but it does involve a lot of details that can change how much money you end up spending on your vehicle. Most of those details are easy to understand once you know what they are, but the more you know about car financing going into it, the more money you can save.

The smartest way to finance a vehicle is to know what to look for when researching finance companies regarding your options, which include interest rates, the cost of the car, monthly payment amounts, and your loan term.

Read about the 3 worst ways to finance your car.

What to Consider with a Car Financing Company

Interest Rates

Regardless of which finance company you choose, you have to compare the different companies somehow, and one of the best ways to start is with the interest rates. Interest rates directly affect your monthly payment, but interest rates are also affected by your credit score.

If your credit score is below 700, you might not be eligible for certain low interest rates and other perks. If you can, therefore, you might want to work on raising your credit score before purchasing your next car so that you’ll get a better deal all the way around.

  The Three Worst Ways to Finance a Car

Cost of the Car

All over the Internet are sites that can help you figure out how much car you can afford, but that doesn’t mean you have to choose a car at the top of the price range. It’s much smarter to keep in mind that what you can afford and what you should pay for the vehicle are two different things.

After all, a car is not an investment. It depreciates, quite literally, as soon as you drive it off the lot. Because of this, you may want to consider purchasing a vehicle that costs less than what you can afford so you can save some money.

Monthly Payment Amount

Although this isn’t the only thing to look at, you have to make sure you can afford your monthly payment. While you’re at it, it’s a good idea to consider the “extras” that may make your payments higher, such as taxes, fees, insurance, and so on. Fortunately, you should be able to get an estimate of these expenses from the car company.

The Term of Your Loan

When you consider the term of your loan, this means making sure you know all of the important details that are in writing in your sales agreement, including:

  • Any prepayment penalties.
  • The length of the loan.
  • Any hidden fees included in the loan amount.
  • What they are allowed to do if you stop making payments.

When you’re looking at the agreement, always read the fine print and if you don’t understand something, make sure you ask an expert before you sign anything.

  The Three Worst Ways to Finance a Car

Frequently Asked Questions (FAQs)

Should I shop around for the best terms and interest rates?

Definitely! The numbers can vary greatly from one company to another, so shopping around can save you a lot of money. Just make sure you’re comparing apples to apples before you get started.

Is it possible for me to get pre-qualified for a car like I did for my mortgage?

Once you’ve compared different finance companies and have found the best one, you can go ahead and ask that they pre-qualify you for a loan. Car companies love when you do this because they don’t waste time showing you cars you can’t afford.

Do I have to put a down payment on the vehicle?

Not necessarily. Some car companies will allow you to buy a car with no money down. Just keep in mind that the more money you put down, the lower your monthly payment will be, so it benefits you to have some type of down payment for your car.

Are credit unions better than banks?

A lot of times, they are. Credit unions can often give you lower interest rates on your loan than banks can. When you’re comparing different finance companies, you should consider at least one credit union if possible.


Being smart about financing your car isn’t difficult. If you’re new to car ownership, some of the information might be a little challenging at first, but it won’t take you long to get the hang of it.

A lot of things go into the financing of your vehicle, including your credit score and any extra fees such as taxes and insurance. If you want to finance the smart way, you’ll have to be aware of all these things so that you don’t get caught off-guard by anything that happens once you start making payments.

  The Three Worst Ways to Finance a Car

Just remember to compare different finance companies and ask as many questions as possible to understand what is going on because this is the best way to be fully prepared for how much you’re going to pay for your car, how long you’ll be paying it, and all the other important aspects of your financing.

What is the smart way to finance a car?

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