Frequently Asked Questions About New Car Financing

Here are some common questions about financing a new car.

How important is a down payment?

If you are able to pay at least 20 percent of the vehicle's purchase price in cash, you will most likely not have to worry about gap insurance. This could save you money if your lender requires gap insurance on car loans where no down payment is present. Having that much cash available for a down payment can also reassure a lender of your creditworthiness.

What is the difference between APR and interest rate?

APR stands for "Annual Percentage Rate," and this figure is important because it tells you how much your financing is going to cost you in the end. So if you finance the amount of $10,000 for four years at an APR of 10 percent, you will end up paying a total of $12,174.24. That means the financing cost you $2,174.24. The "interest rate" is the money the lender makes for providing the loan.

Should I opt for a longer loan term to reduce my monthly payments?

The loan term is usually stated in terms of months, such as a 36 month loan. The longer your loan term lasts, the lower your monthly payments will be. However, this also means that you will be paying a lot more interest on your vehicle, which could put you "upside down," or owing more than the vehicle is worth.

Can I get a new car loan with bad credit or no credit?

Financing a new car purchase is easier than you may think, even with no credit or bad credit, including a bankruptcy. If you have a steady job and/or someone is willing to co-sign the loan for you, you can work on fixing your credit situation while getting the car of your dreams at the same time.

Is it a good idea to apply for a new car loan online?

Definitely. Not only can you get new auto financing at a better rate than some banks and credit unions if you go online, but also a lot of the online car loan companies will let you apply instantly for several loans at a time. This means you can immediately compare interest rates and accept the loan that's best for you. Many online financing businesses also focus on helping people with poor or no credit obtain auto loans.

Should I pick out the car I want before I get the loan?

No. The important thing is to get your loan approved first. Once you know how much money you've been approved to spend on a car, you will be better able to choose a vehicle that falls within your price range. This will save you from disappointment if you can't afford that Porsche you've got your heart set on.

Will it hurt my credit score if I apply to several lenders for auto financing?

At this time, the major credit agencies claim that all inquiries concerning a specific type of purchase (i.e., vehicle or home loans) that take place within a 14 day period will be considered one inquiry for credit scoring purposes.