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Car Financing

CreditGUARD of America is a non-profit credit counseling agency committed to educating consumers on basic money management for living credit smart. Other than buying a home, one of the most common large purchases is buying a car. Most consumers depend on auto financing to buy their car.

To help you make the smart credit choice, this section of our Money Management Series explains the basics of auto financing and where you can get your car loan. If you have any questions about our auto financing section, please contact us online or call CreditGUARD of America at 1-800-500-6489.

Basics of Auto Financing

Before you consider auto financing, check your credit score. Your credit score is one of the defining factors in determining your car loan interest rate. The higher your credit score, the lower your interest rate.

Other factors that can affect your auto financing are amount of down payment, the value of your trade-in and the length of the loan. Most lenders require at least 10% and prefer 20% or more down on the car. The less you have to finance, the lower your car payments will be. The value of your trade-in depends on year, make, model and condition of your car. Check the Blue Book Value of your car and know what the dealer should offer you for your car. Most car loans are 36, 48 or 60 months. The longer you take to pay off the loan, the lower your monthly payments will be; however, in the end, you’ll end up paying more interest.

If you have bad credit, you might want to hold off getting a car loan until you improve your credit. Studies have shown that consumers with bad credit can pay up to 60% more on a car loan.

Where To Get A Car Loan?

Consumers can apply for a car loan from several lending sources. Our credit counseling agency has complied a list of the most common lending sources:
Dealer Financing
Most car dealerships offer auto financing. The dealer usually works with several lenders. When you apply for auto financing, all these lenders will examine your credit card debt report and make the dealer an offer.

  • Auto Financing Pros – Dealer financing is the easiest to obtain and requires the least amount of work.
  • Auto Financing Cons – The auto dealer is most concerned with providing financing in order to complete a sale. This could result in giving the consumer a high interest rate. A consumer should be aware of prevailing interest rates and terms when obtaining auto financing from a dealer.

Private Lender
There are a variety of private lenders that consumers can use. Some lenders offer to process your loan application online for convenience, while others will assist you over the phone. Consumers can also use online lender marketplaces that will submit your credit report to several lenders and get you a competitive financing rate.

  • Auto Financing Pros – Private lenders offer a great amount of flexibility and allow you to shop around for the best finance rate before trying to buy a car.
  • Auto Financing Cons – Shopping for competitive rates requires a little more homework. Some lenders may require a higher credit score to be eligible for their program.

Banks/Credit Unions
Most banks and credit unions offer auto financing to their members. Depending on your banking history and credit report, you may be able to obtain a lower interest rate on your car loan.

  • Auto Financing Pros – Studies show that most banks/credit unions offer the best auto financing rates.
  • Auto Financing Cons – Banks and credit unions offer very strict lending guidelines and usually only deal with consumers that have excellent credit.

Weigh all your financing options carefully, before committing to a car loan. Make sure that you will be able to make the monthly payments; otherwise you may be getting into a car loan that you cannot afford which will result in credit problems or even repossession. Repossession can severely damage your credit rating and can prevent you from receiving financing in the future.