Car Financing Explanation

Car financing allows new- and used-car buyers to finance an amount of their purchase. This allows the buyer to purchase a vehicle that is more expensive than he could otherwise afford. Although car financing can help build credit, it is important to avoid taking on a financial obligation that is too large.

Basics

An auto loan is a type of installment credit. A regular monthly payment is due until the balance is paid in full.

Prime Loans

Prime car financing is that which is offered to shoppers with the best credit scores and credit histories. Prime shoppers will qualify for low- or no-interest loans from manufacturers, and also qualify for great rates from banks and credit unions.

Near-Prime Loans

Near-prime borrowers normally qualify for special rates offered by manufacturers, but such approvals are situational. These prospects get good rates, but some documentation like proof of income may be required to finalize the loan.

Subprime Loans

Subprime car financing is offered to borrowers who have little or poor credit histories. Interest rates may be as high as 25%, depending on credit history. A large down payment may be required to offset the additional risk taken by the dealership.

Simple Process

Car financing is a simple process. In most cases, a dealership can have financing arranged and all paperwork completed in less than an hour. Taking an auto loan can help improve your credit and show that you can handle large debts.

References

• GMAC Financial Services
• Credit Acceptance Corporation