What is car finance?
Car financing deals is a general term that covers different ways to borrow money to pay for a new or secondhand vehicle. It’s essentially a loan that allows you to spread the cost of buying a car over several months or years.
Car finance options include personal contract purchase (PCP), hire purchase (HP), personal car loan or leasing. Learn more in our guide to car finance.
Your credit and financial situation
Lenders consider your income, length of employment, credit history, debt-to-income ratio, credit score and other financial factors when approving an auto loan and setting the rate
The scoring model a lender uses can also affect whether your loan is approved and at what rate. Credit scores fall within a range of 300 to 850 on two basic scoring models, FICO and Vantage Score. Some auto lenders also use industry-specific scoring on top of the basic FICO model when making auto loan decisions.
How do 0% APR finance deals work?
APR stands for annual percentage rate. It’s a standard way of calculating the full cost of finance and takes into account the interest charged on borrowing, as well as any fees. This makes it easy to compare the cost of finance between different providers.
If finance is advertised as 0% APR, then it means you won’t be charged any interest or fees. This should mean that the overall amount you pay is no greater than if you had bought the car you’re considering outright in cash.
A 0% APR offer often doesn’t take into account the discounts available in other forms of new car deals, however. For example, a manufacturer’s 0% APR offer may not include a deposit contribution or other discount incentive, so you’ll repay the full retail price of the car as advertised in the brochure.
If you’re buying in cash, you might be able to get a discount off the price, making the car cheaper, but bigger discounts are typically available if you opt for a finance deal that charges interest. If you are able to keep the contract length short, then this can work out to be the cheapest option overall.
What is the smartest way to finance a car?
When financing a car, you want to make sure you get the best terms your financial and credit situation can get you.
First, remember that the best deals are reserved for those with high credit scores. If your credit could use some work, it might be a good idea to take time to improve your scores before shopping for a car.
Another thing you might want to think about in advance is the down payment. Putting more money down can allow you to lower your monthly payments and interest charges, shorten the loan and even get better rates. The best practice is to put 20% down on a new car or 10% on a used car.
Additionally, make sure to shop around for lower interest rates. The lower rate you get, the less you’ll pay in interest charges over the life of the loan. This can lead to thousands of dollars in savings. Don’t worry about the impact multiple hard inquiries will have on your credit: Most credit scoring models will count car financing inquiries made within 14 to 45 days of each other as one.
Further, get the shortest loan term length you can fit into your budget. A longer-term length means more interest paid over the life of the loan. Plus, many financial institutions will give you a higher interest rate to begin with for choosing a longer loan.
How do you qualify for car finance deals?
Car finance deals for as little as 0% APR aren’t available to all buyers. Instead, manufacturers limit them to “well-qualified buyers” only; manufacturers and dealerships will set the terms and conditions necessary to be considered a “well-qualified buyer” so be sure to talk to your dealership about those conditions. The dealerships and car manufacturers offering 0% APR interest rates don’t usually publish the exact credit score you need to qualify for the best rates, but you’ll typically need to have excellent credit.
How to get a better auto financing rate.
A good interest rate for an auto loan is subjective– it depends on your credit score, the car you’re buying, the amount of your down payment and more. In the first quarter of 2024, the average new car rate was 6.73%. For used cars, the average was 11.91%.
Improving your credit score isn’t the only way to get a better car loan rate. You could also:
Order your credit report
Order your free credit report and check for errors. Disputing credit report errors can give your score a lift. Unfortunately, errors are more common than you might think.
Make a down payment
Not all auto loans require a down payment. Even so, it may be a good idea to make one anyway.
Putting money down takes some of the lender’s risk and transfers it to you. After all, you’ll lose your down payment if the lender repossesses your car. As a result, a down payment can help you secure a better rate.
Financing limits
Sometimes 0% APR car deals are limited to a set loan amount, meaning you pay interest on anything over that loan amount or make a higher down payment. These 0% APR financing deals may also come with set loan terms– the most common being 60, 72, and 84 months– which can be a longer loan term than you’re willing to commit to.
Best Truck Finance and Cash-Back Offers
If you ‘d prefer to buy instead of lease, there are a handful of September cash-back deals that could take a big bite out of that new truck purchase price. Nissan is sweetening the 2024 Frontier with $1,250 cash back, the 2024 Hyundai Santa Cruz is offered with a $2,000 discount, and GMC is plopping $2,750 on the hood of select 2024 Sierra 1500 trucks. The 2024 Toyota Tundra and Nissan Titan are both available with $3,000 cash-back deals in certain regions, while the 2024 Ford F-150 and Jeep Gladiator allow for up to $3,250 cash back.
For the biggest savings, check out the $4,500 discount on the last-gen 2024 RAM 1500 or the $3,750 price cut on the Chevy Silverado 1500.
Finalize your auto loan
Confirm the terms with your lender once you’ve found the right auto loan. You must send in any required paperwork, including proof of insurance, before signing.
Sign the loan contract: If you agree to the terms, review and sign the loan contract. If you have a co-borrower or co-signer, they will also need to sign the contract. If you have an auto loan from a dealership, the dealer will provide the lender’s contact information on the contract.
Get the vehicle title and registration: You must have your vehicle title sent to the lender and the vehicle’s registration updated to your name. The dealership will usually take care of this. If not or if you’re buying from a private seller, work with the seller and DMV to update the necessary documents.