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.

As a purchaser wanting to finance a vehicle, you have two options:

1. Wait to Apply for Financing While at the Dealership

If you decide to buy a car and you want the dealership to help you finance it, you will be asked to fill out a credit application. The dealership may send your credit application to several indirect lending institutions. Based on your credit score you may be either approved or declined for financing. The amount you finance will be based on the negotiated price of the vehicle plus related expenses such as sales tax, title fees, licensing and other taxes.

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.

2. Get Conditional Approval for Financing before Visiting the Dealership

The first thing you should do if you want to get conditional approval 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 declined. 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 get conditional approval for financing before visiting a dealership. The financing process begins with filling out a credit application. However, there are many lending institutions that specialize in sub-prime financing. Even if you have had a bankruptcy, repossession or slow credit in the past you can get conditional approval for financing. Once approved, you will be given a credit limit and monthly payment amount that you can use to shop for vehicles.

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 conditional approval for 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.

AAC allows you to save time and paperwork during the car buying process through our Yes Auto Loans service. Apply Now for automobile financing before visiting the dealership. For qualifying applicants, AAC will email a Certificate of Conditional Approval for automobile financing that can be used at authorized dealerships in your area.