How Car Finance Works and How to Apply for it Online?

If you are out there looking for a new car to buy, you must have already come across a lot of car sales lingo. You must also be aware of the various in’s and out’s that go into negotiating a price with a seasoned car dealer or salesman. In this article we are going to discuss how car financing works. Understand what determines the interest rate that you get, and how to assess and decide whether or not you’re actually getting the best deal. Know that financing a car doesn’t have to be difficult or complicated at all.

All you need to do is understand its basics. You’ll then be in a better position to decide on what kind of car financing option may be right for you. For a first-time car buyer financing a car seems a bit overwhelming. Let’s have a look at some simple car financing basics:

Once you’ve decided which car you want to buy, you can pick from 2 payment options: you can either pay for the vehicle in full or get it financed over time with a loan or a lease. Today most car purchases involve financing (usually bank loans), but what you should be aware of here is that financing will increase the total cost of your vehicle. This is for the simple reason that you’ll be paying for the cost of the vehicle and the credit (interest and loan costs) in addition to it. Financing a car with a loan is the most popular option that most car buyers like to go for. Here you will have to consider 3 major factors.

• First is the amount of the loan. This is the total amount of credit that you’re going to be borrowing from the financial institution to get the car.
• Next is the annual percentage rate which is also known as the APR. This is the interest rate that you will be paying on your loan.
• And last but not the least, the loan term. This is the amount of time you will be given to pay back the loan amount that you took.

You need to know that the interest rates for a car loan will usually be higher in case you’re hoping to obtain finance for a used car as compared to a new one. So it is advised to shop around wisely for the best rate. You can use online auto loan calculators to see how different APRs, loan amounts, and terms will affect your monthly installment.

Also, it is highly recommended to look for a car loans that comes with no prepayment penalty. This will save you loads of money and stress if you decide to pay off your car loan before the term finishes or want to refinance your car loan.Car Loan Images

The loan process is easier than you think. Apply for it as follows:

First Check Your Credit

Check your credit report before you shop for a loan. Better credit means cheaper rate of interest and with a higher credit score you may also qualify easily for lower auto insurance premiums. Make sure to review your credit report to look for any unusual activity. Remove all the dispute errors such as late payments or incorrect balance, etc.

Always Know Your Budget

Having a budget is an intelligent move and knowing how much you can actually spend on a new car is even more essential. You should be sure that your car payment fits well within your other financial goals. If you don’t have a budget yet, consider your monthly income after all the taxes and subtract your usual monthly expenses. Your monthly savings should be able to guide you to your spending ability.


Once you know where you stand financially, you have to decide on a realistic monthly car payment. A good rule of thumb is to not exceed 10% of your take-home income when spending on a vehicle. With that in mind, you can also use an auto loan calculator to help you figure out the biggest loan amount you can afford.


You should get preapproved for a car loan. Start by researching for potential loans and compare the terms, and interest rates and so forth to find the best deal. Do make note that preapproved loans last for a certain amount of time only. Thus it is best to get preapproved when you’re almost ready to shop for a new car. Being preapproved doesn’t imply you’ll automatically get a loan. The info you have provided and whether or not the lender has agreed on the value of the car may affect the final loan approval.

Make Time For Shopping

Now you’re ready so put in a little time for research intended towards finding a car that is known to be reliable and fits well into your budget. You can consider its size, mileage and torque and transmission and extra features. Compare prices at different dealerships in your city and don’t forget to ask the dealer about any incentives and rebates to get the best deal on your new car.

About the Guest Author

InstaAuto is an Australian company, funded out of California, that has a mission to simplify the car buying process through the use of technology. Our proprietary finance application technology allows customers to quickly and easily compare different finance options on new and used vehicles.

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