Facts About Financing a Car

Buying a new car generally requires having the financial condition to finance the vehicle. Most people don't walk around with thousands of dollars in their pocket or even in a bank account. Because of this, you need to understand how financing a car works and what is expected of you in the process. Financing facts not only make you a more educated consumer, but might also help you to get the most bang for your buck when you purchase a new vehicle.

Dealer Financing

Most auto dealerships have a financing department that works to obtain financing for your new car. However, this is not always the best deal you can get. You are allowed to get your own financing to purchase a vehicle. Shopping around might get you better loan terms than you might have gotten at the dealership. Always keep in mind that focusing on the monthly payment is not your only consideration, the interest rate matters just as much, which is why it pays to shop around. A dealer, while not obligated to, will generally accept financing if you've already obtained it yourself to buy the vehicle.

Lien Holder

Even though you are purchasing the vehicle and consider yourself to be its rightful owner, keep in mind that your lender has the lien on the car until it is paid in full. You cannot sell the car or get a loan against it without the approval of the title holder, which is the bank, finance company or creditor that extended the loan to you to purchase the vehicle. This is why, no matter how many payments you've made, the finance company can repossess your vehicle if you miss payments, even if you are nearing the end of your loan period.

Credit Insurance

A financing company or lender might ask that you buy credit insurance on your new vehicle. This ensures that the loan is paid off if you should become fatally injured or otherwise incapacitated and are unable to make payments on the loan. However, this is not something that is required by federal law, so consider if this is an expense you can afford. Also, check with your state's attorney general office about the requirements for this kind of insurance and keep in mind that the cost of the policy must be included in the amount of credit extended to you from the finance company.

Full Disclosure

Anytime you finance a vehicle or any large purchase, a lender must fully disclose all of your rights and responsibilities to you. Generally, lenders provide paperwork to this effect so that you can peruse the literature at your discretion. Two important pieces of information that your finance company must share with you include the Truth In Lending Act, which requires that your lender provide you with the full terms of the lending agreement. These terms must include an accounting of the finance charges, interest rate, late fees and anything else that may cause your payment amount to fluctuate. The finance company must also provide you with information on the Consumer Leasing Act, which talks about amount due at signing or at the delivery of the vehicle as well as monthly payment amounts and how many there are in the lease period.