Financing 101 in Greenville, NC

Auto Financing at Barbour Hendrick Honda

Purchasing a new car can be a fun and exciting process, but when it comes to finding the right financing deal, even experienced buyers can feel overwhelmed. While test-driving a new Honda model is thrilling, analyzing loan agreements and understanding all the details can be intimidating. However, conducting thorough research before making a final decision can greatly improve your car ownership experience. To assist you in securing the most favorable financing agreement, Barbour-Hendrick Honda Greenville in Greenville, NC, has created a helpful guide to car financing 101.

What Is Auto Financing and How Does It Work?

Auto financing, in simple terms, is a method that allows individuals to purchase a car by borrowing money and gradually repaying it over time. It is a popular option, with over 84 percent of new vehicles being acquired through auto financing. When you decide to finance a car, a bank, credit union, or another lending institution provides you with the necessary funds to cover the upfront cost of the vehicle. You then repay this amount, along with interest, through monthly installments over a predetermined period.

There are three key elements of an auto loan: interest rates, loan terms, and conditions.

The interest rate represents the cost of borrowing the money and is typically expressed as a percentage. Loan terms usually range from 36 months (three years), 48 months (four years), to 60 months (five years), and determine how long your repayment schedule will be.

Lastly, the conditions of an auto loan include factors such as penalties for late payments or any regulations regarding early loan repayment. These conditions vary depending on the lender and the specific loan agreement.

Types of Auto Financing

Here is a revised and reordered list of the different types of auto financing available:

1. Secured Auto Loans: These loans are backed by the vehicle being purchased. If you default on the loan, the lender has the right to repossess the car. Secured loans typically have lower interest rates compared to unsecured loans but require a down payment.
2. Unsecured Auto Loans: These loans do not require collateral. Instead, lenders rely solely on your credit score to determine eligibility. Although unsecured loans generally have higher interest rates than secured loans, they can be a viable option for individuals with bad credit or those who cannot afford a down payment.
3. Lease Financing: This involves renting a car for a specified period, typically 24 or 36 months. At the end of the lease, you have the choice to return the car, purchase it, or lease a new one. Lease financing usually offers lower monthly payments compared to auto loans but does not provide ownership of the car at the end of the lease.
4. Auto Refinance: This process involves obtaining a new loan to pay off an existing auto loan. It can be beneficial if you have improved your credit score since taking out the original loan or if you are seeking a lower interest rate.
5. First-Time Car Buyer Loans: These loans are specifically tailored for individuals purchasing their first car. They generally come with lower interest rates than traditional auto loans and may offer additional benefits such as waived application fees or reduced down payment requirements.

Factors that Affect Auto Loan Rates

Factors that influence auto loan rates can vary. Generally, having a higher credit score can lead to lower interest rates. However, financial institutions also consider other factors, such as your debt-to-income ratio and income when determining interest rates. The loan term, or the duration of the loan, can also impact your financial obligations. Typically, shorter-term loans have lower interest rates but necessitate higher monthly payments since there is less time to repay the full amount. Despite the higher monthly payments, opting for a shorter term can result in lower overall financing costs. Compared to longer-term loans, you would pay less in total by the end of the loan term.

The age of the vehicle can affect insurance rates as well. Generally, newer cars tend to have lower insurance rates compared to used ones. This is because lenders perceive newer vehicles as less risky. Since newer vehicles are less likely to encounter breakdowns, the probability of filing insurance claims is lower. Additionally, manufacturers and dealerships often offer promotional rates and incentives for new vehicles that are not available for used vehicles.

Making a higher down payment typically leads to a reduced interest rate since you'll be borrowing a smaller amount. Some car buyers choose to trade in their old vehicle instead of making a down payment, using its trade-in value as the down payment. You can use our "value your trade" tool to calculate the worth of your vehicle.

How To Compare Auto Loan Rates

By comparing auto loan rates, you have the potential to enjoy significant savings. To do this effectively, gather quotes from multiple lenders and analyze their interest rates and loan terms. It is important to factor in the annual percentage rate (APR) as well, as it includes other loan expenses in addition to the interest rate.

When you are ready to determine the most suitable auto loan for your needs, rely on the expertise of the finance department at Barbour-Hendrick Honda Greenville. Our knowledgeable professionals will assist you in considering various factors such as the loan amount, interest rate, loan term, and any additional fees.

How To Determine Your Monthly Budget

Finance experts advise individuals to allocate a maximum of 15% of their monthly income towards transportation expenses, which encompasses expenditures such as car payments and insurance.

How to Get Pre-Approved for an Auto Loan

To ensure a confident shopping experience, it's advantageous to obtain pre-approval for an auto loan. This involves providing information about your income, employment, and credit history to potential lenders. Based on this information, lenders will evaluate your eligibility and offer a quote that specifies the approved loan amount and corresponding interest rate. This pre-approval allows you to determine your budget before starting your car shopping journey.

At Barbour-Hendrick Honda Greenville in Greenville, NC, obtaining pre-approval is a hassle-free process. By completing a quick online application, our finance department will promptly provide you with various financing options that are tailored to your specific needs. It's important to remember that thoroughly understanding your options and conducting extensive research are essential steps in finding the best auto loan for your situation.