Financing Your Next Car

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Purchasing a car can be a difficult decision. There are so many items to consider like make, model, fuel efficiency, and extra features; all of which are secondary to procuring financing. So where are you going to get the money to pay for that pricey car you’ve been longing for? Fortunately, there are many funding sources available including credit unions, banks, or even the dealership itself.


It is best to shop for the most suitable financing solution in advance of purchasing a car rather than settling for something convenient. There is no right or wrong choice, and it really depends on your individual credit history.

creditscoreKnow your credit score. It could determine what kind of loan you get or even if you get approved at all. In general higher credit scores mean lower interest rates. You can find your credit score through reporting agencies such as EquifaxExperian PLC, and TransUnion, which are three of the main credit reporting agencies.

Estimate how much you can afford. Do this before you go car shopping to avoid being swayed by a slick salesmen. Look at your monthly bills and current household budget. The Wall Street Journal suggests “your monthly car payment should be no more than 20% of your disposable income” as a guideline. Within that amount, be sure to include estimated insurance, fuel, and maintenance.

Shop for your loan before heading to the car Dealership. Loans are based on a number of factors including but not limited to your credit score, the loan term, the region you live in, and the age of the car. Again, compare rates and options, do not just jump on the first one that sounds good because chances are you can find a better deal elsewhere.

Avoid financing through Dealerships. Loans from car dealers are convenient because they are drafted in-house and often during evening and weekend hours when traditional banks are closed. However, the interest rates they offer are frequently marked up, making them higher than most bank rates. According to these offers are usually front-loaded meaning that you pay more interest upfront. But if you have bad credit or no credit history at all, then dealership financing may be your only option so…

buyingacar3Be diligent when financing through a Dealership. Add-ons such as extended car warranties are often automatically bundled into your financing package, so read your loan documents carefully prior to signing to ensure you are not being billed for options and add-ons that weren’t discussed in the initial negotiation.

Financing through a credit union or bank has it’s benefits. Going to your bank or credit union should be your first choice because you are already their customer and likely to have a credit history with them. The most common type of car loan they provide is a simple interest loan with a small down payment. The “pink slip” of the car acts as collateral to secure the loan, and is not officially put into your name until the loan is paid in full. The loan process may not be as quick as it would be if you were to go to a dealership, but these sources have loan officers who are trained to walk you through the loan procedures, and their interest rates are most likely lower.


There is nothing better than walking into a dealership with your loan already secured. But if you don’t know what you are looking for, that euphoria can morph into confusion rather quickly. Researching and setting a target has become easier than ever with the various Internet resources available. So perform a Google search for all makes and models that appeal to you. Check for features, fuel standards, and reviews by other vehicle owners. Be realistic and think about your true car needs. Make sure that the car you are considering has enough seating and cargo space. Factor in expenses that you will incur after actually making the purchase like auto insurance, fuel per gallon, annual state re-registration, and basic maintenance such as oil changes, tune-ups, and tires none of which are tied to your initial car loan.


Buying a car can be both exciting and exhausting at the same time. So the next time you walk into a dealership, know everything about the car you aim to buy and have your financing secured in advance. Doing so, will put you in control of the purchase and set the stage for an enjoyable experience.

Happy car shopping!

What do you think?

Written by Camille Hislop

I am a twenty- something graduate of California State University, Northridge (CSUN). My major was journalism, with a focus in photojournalism and I minored in Central American Studies.

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