Car Financing Explained: How to Finance Your Vehicle

So you’re ready to buy a car. If you don’t have the cash on hand to pay in full, you’ll be financing. Financing a vehicle is taking out a loan to pay for a car’s up-front cost. You then make monthly payments on that loan until it’s paid off. The decision to borrow a loan is a big one. We’re here to help you get informed to determine the best way to finance a car for yourself. Then, you can head to your local Kunes dealership with confidence or buy a car online with a good idea of how it will impact your monthly budget.    

Here’s a breakdown of the terminology you’ll come across when learning about how to get a car loan:  

Principal – This is the full amount of the loan you’re taking out for the purchase price of the vehicle, before fees, interest, and other costs. 
APR – The “annual percentage rate” is the interest rate you’ll pay on every month, in addition to the principal. The lower the APR, the better, because it means a lower monthly payment.  
Down payment – The amount you “put down” is the portion of the cost of the vehicle that you pay up front or contribute by trading in your old car.  
Loan term – AKA the loan duration. It’s the length of time you have to pay off the loan. 
Total cost – The combination of the principal and the interest you’ll pay over the life of the loan are added up to make your total costs. 
Amount Financed: this is the total value of the credit used by the consumer, including the principal amount of the loan, plus any charges which are not part of the finance charge, minus any charges which are part of the finance charge but will be paid before or at the time of the close on the loan.
Finance Charge - the total cost of the loan including interest, fees, and credit checks. The finance charge is the total of all fees and interest charged on a loan.
Total Payments -  the sum of the amount financed plus the finance charge.
Payment Schedule -  the number, amount, and due dates for each of the payments scheduled to repay the car loan.
Total Sales Price -  the sum of the scheduled payments plus any down payment made on the automobile.

These are the key buzzwords that will help you understand all the financial jargon as you learn how to finance a car. Before you go through with financing a car, though, you’ll also need to know information about your own financial situation: 

Credit score – You can check this for free through several services without affecting your score or overall credit report. Your credit score will be the biggest factor in determining your interest rate: the higher the score, the lower the APR. 
Budget – Run the numbers and determine how much you can realistically afford to spend every month on your car, in addition to all of your current bills and expenses. If you’re afraid you might not have the cash flow to finance a car, consider leasing a vehicle, which may offer lower monthly payments. 

Now that we have all of that info in our toolkit, it’s time to look at how to get a car loan. There are two main avenues: dealership lending and direct lending. 

If you’ve found the car of your dreams and are ready to make it yours, our financial managers can help you get financing on the spot. We work with many lending partners so you can pick from multiple financing options. This can be super convenient, since it saves you the hassle of contacting lenders on your own, and lets you get everything sorted quickly and smoothly.

Direct lending through a bank, credit union, or online lender is another possible route that you can take. This option alleviates the stress of making immediate decisions at the car dealership. However, it requires you to contact each lender separately. Also, you must conduct the necessary research and secure loan approval prior to finalizing any agreements at the dealership.