Financing a new car: what to know before you apply
Rate, term, down payment and the total you will actually pay: how the pieces fit, and the questions worth asking.
Most new vehicles in the United States are bought with a loan or a lease, and the financing can change what you pay as much as the price of the car. Understanding a few basics before you apply puts you in a much stronger position.
Four numbers drive a car loan: the amount financed, the interest rate expressed as an APR, the term in months, and your down payment. Lower the amount financed or the rate and the payment goes down. Stretch the term and the payment also goes down, but the total interest you pay goes up. Always ask for the total of payments, not only the monthly figure.
Your credit profile has the biggest influence on the rate you are offered. It is worth checking your credit reports for errors before you apply; you can request them for free from each of the three national bureaus. Paying down card balances and avoiding new credit right before a vehicle purchase can also help.
Manufacturers sometimes offer special financing on specific models for buyers with strong credit, and those offers usually change every month. When a special rate is available it can be worth more than a cash rebate, and sometimes the reverse is true. Your advisor can compare both for the vehicle you choose.
Leasing is a different tool. You pay for the part of the vehicle's value you use during the term, plus fees and a money factor that works like interest. Payments are often lower than a loan on the same vehicle, but mileage limits and wear charges apply, and you do not own the car at the end unless you buy it.
Read the contract before you sign, line by line. Make sure the rate, term, amount financed and any optional products match what you agreed to. Optional add-ons should be explained clearly, and you are free to decline them.
With Car Advisor you complete one secure credit application, and your advisor coordinates the options through our dealership partners and walks you through each one. You can also estimate a payment with the calculator on our Financing page before you apply.
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