How to figure out financing

If you are looking into buying a new car, chances are you will need to finance it.  But with so many different numbers and offers out there, how do you know which choice is right for you?  Understanding how financing works, and what financing companies look at is a good way to figure out if you can afford that car you’ve been dreaming about or not.

With numerous offers from every dealership, it’s easy to get confused how much you may actually be paying for your new car.  Rebates and interest rates mean different thing to you, the consumer, so it’s best to know what they mean.  Also, before you go car shopping, make a budget for yourself.  Understanding how much you want to spend every month on your car, and how long you want that contract to be, will help you make better decisions when at the dealership.  Here’s more information from about financing options.

Check Your Credit First

Your credit will have the most significant impact not only
on your ability to get a loan, but also the amount of the
loan you receive. The better your credit, the more likely
you’ll get a high loan with a low interest rate. On the
other hand, if you have a low
credit score, you might
get a high interest rate, a low loan amount, or even
denied financing.

Before you start car shopping, first check your
credit report to see if there is any negative information
that could prevent you from getting a car loan. Negative
information includes things like late payments, collection
accounts, foreclosure, or tax liens. You can order a
free credit report by visiting

Rebates vs. Interest Rate Incentives

Often, you’ll see advertisements from dealers or manufacturers about rebates and interest rate
reductions on certain cars. Manufacturers typically offer rebates when they have a large inventory of a car
and they’d like to increase sales of that particular model. Interest rate reductions are often offered by
dealers and their financing companies to entice you to buy from them rather than other dealers.

If you’re choosing between a rebate and an interest rate reduction, the rebate will often result in the
lowest price, assuming the interest rate you ultimately receive isn’t much higher than the interest rate the
dealer is offering.

Typically, low dealer interest rates require you to have a good credit rating. Not only that, you often have
to agree to a shorter loan term, i.e. 24 to 48 months. Because the loan term is shorter, your monthly
payments are often higher than they would be if you were paying on your loan for a longer period of time.

How Much Can You Afford?

Before you start looking for car financing, you should know what size loan you can afford. First, decide
how much you can afford to spend on monthly car financing. Then, decide how many years you will spend
paying off your car. Multiply the number of years by 12 to come up with the number of months, e.g. 5
years X 12 is 60 months. Finally, multiply your monthly car financing amount by the number of months to
come up with the amount of loan you can afford. For example, $500 per month X 48 months, means you
can afford a car that’s around $24,000.

So be sure to know what you are getting into when you are looking for your next car.  Knowledge is power, and being prepared will go a long way.  If you are looking for finance options on your new car, be sure to let me know and we can get you behind the wheel.

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