How Car Financing Works

For the most part, people don’t have the cash to purchase a vehicle outright, so they need to finance their vehicle. While financing a car can seem a bit overwhelming, it really doesn’t have to be. According to Market Business News, an online newspaper that specializes in publishing financial, economic, stock market, and business news articles on a daily basis, auto financing refers to “the range of financial products available that allow people to acquire a car with any arrangement other than a full-cash single lump payment (outright payment).”

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How Car Financing Works:

AUTO LOAN STATISTICS

• According to Lending Tree, America’s largest online lending marketplace, there are some interesting key facts about auto loans, from the first quarter of 2019 (January 1 to March 31). Note: the findings below are averages and will vary according to credit score.
• The average loan amount was $32,187 for a new car and $20,137 for a used car.
• The average interest rate for a car loan was 8.35%.
• The average monthly loan payment amount was $554 for a new car and $391 for a used car.
• The average auto loan term was 69 months for a new car and 65 months for a used car.

SOURCES OF CAR FINANCING

• The main sources of auto financing are dealership financing and direct lending. Again, back to Market Business News, dealership financing means “getting financing through the sellers – the dealership. This time the contract is between the dealer and the customer, whereby he or she buys a car and agrees to pay, over a set period, the amount financed plus a finance charge.”
• The pros of getting a car loan through the dealership include convenient one-stop shopping and customer incentives, such as 0% financing and cash-back incentives.
• And with direct lending, “the purchaser gets a loan directly from the lender, which is usually a bank or a credit union. The consumer agrees to pay back the loan over an agreed period, with interest plus a finance charge.”
• The pros of getting a car loan through a bank or credit union include better, more personalized service, competitive loan rates, easy loan applications and lower interest rates.

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