Automobile Acceptance Corporation

In the automobile industry, the term financing means the dealership will provide you with credit to purchase a vehicle. The opposite of financing would be buying it outright with one cash payment.

Many people like the convenience of getting credit through a car dealership. If you choose to get funded at the dealership your credit rating will determine how much the dealer will charge you for your financing. If you have good credit you could qualify for a competitive interest rate and be eligible for special programs that lower your cost. However, if you have less-than-perfect credit the dealer might charge a much higher interest rate for the increased risk of financing your car.

Another option is to get pre-qualified through a finance company that specializes in used car financing for people with a bankruptcy, poor credit or no credit. If you are pre-qualified you can visit your local dealership, choose a car, fill out the appropriate paperwork and drive away in your car.

As a used car purchaser, at this point you have to answer one of the following questions:
"I want to finance the used car at the dealership."
"I want to get pre-qualified for used car financing, before I visit the dealership."

Let's look in more detail at each of these basic financing options so you can know what to expect from your used car financing experience:

"I want to finance the used car at the dealership.

If you decide to buy a used car and you want the dealership to help you finance it, you will be asked to fill out a credit application. Based on your credit score, financing will be arranged through the dealership's funding institution. The used car financing will be based on the negotiated price of the used car and related expenses such as sales tax, titling fees and licensing fees. Most dealerships have arrangements with finance companies to fund a large portion of their used car sales.

You will probably be asked how quickly you want to pay off your used car. Most used car financing is from three to five years -- 36 to 60 monthly payments. However, different lengths of time can be arranged, if desired. The longer you take to pay off the balance, the lower the payments will be. In addition, the amount of your monthly payment will depend on the interest rate, the length of the financing and the amount of your down payment. Keep in mind that most dealerships will require you to make a down payment.

While you are paying off the balance you owe on your used car, the lending institution will hold the title for your used car. Once all of your payments are made, the finance company will send you the title to your car.

"I want to get pre-qualified for used car financing."

The first thing you should do if you want to get pre-qualified for your next auto loan is check your credit rating. It’s important to know where you stand financially. See the Financing Tips article for more information on checking your credit rating. If your credit score is less than 600 it is typically a bad idea to submit multiple applications to different financing companies at the same time. Filing multiple applications can actually drop your credit score even further and increase your chances of getting rejected. It is best to limit your applications to one or two trusted financial sources that specialize in less than perfect used car financing. AAC is a great place to start, however there are many lending institutions that specialize in sub-prime financing.

The financing process begins with filling out a credit application. If you are approved, you will be given a credit limit and in some cases issued a check, also called a draft or a bank draft, which can be made out to a dealership. The lending institution will hold the title for your car while you make the agreed-upon payments. When your balance is paid off you receive the title to your used car.

Don’t worry about finding used car financing, even if you have had a bankruptcy or have been turned down in the past. If you had bad credit but now make more money there are many financial institutions that can provide you with pre-qualified used car financing. As long as you haven’t had a bad credit experience within the last six months you will typically qualify for competitive used car financing. Plus pre-qualified financing can also help you re-establish your credit, and it gives you extra negotiating power at the dealership.

For the average used car shopper, these basic financing options can really help to make the buying experience much more pleasurable. Many people with a poor credit rating automatically assume that they can’t get pre-qualified used car financing and opt to “risk it” at the dealership. By doing a little research ahead of time you can save yourself a lot of headaches and a little money as well.

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