You've decided to purchase a car. It's an exciting day because the right car can fuel your dreams and goals. It can get you to your work or gigs, to your social engagements, and to fun and exotic destinations. Once you've narrowed down the vehicle you want, you're ready to visit our dealership. However, cars can be expensive. Even the affordable ones aren't cheap. An average used car might be "just" $20,000, but very few people have that kind of money sitting around. Even if you do, using it might mean wiping your savings. That is where Chevrolet financing comes in, so you don't have to hand over a massive amount of money all at once.
There are a number of institutions that can help you finance a car. One of the best options that you might not think of if this is your first time buying a car is the car manufacturer itself. GM Financial is a great way to finance a new Chevy and usually offers special rates. Then there are traditional banks and third-party lenders. You certainly have options when you need to borrow money to buy a car. However, it's first important to understand everything there is to know about financing a vehicle––especially if it's your first time. Understanding all the parts that go into financing a car will help you make the smartest financial decision.
How Does Car Financing Work?
When you go to buy a car, you will need to be able to cover the cost of the vehicle, including fees and taxes, in full. If you don't have that amount of cash available, you will need to get a car loan. One of the best ways to begin car shopping is to get pre-approved for a loan, which you can do right here on our website. This helps set your budget since you now know how much car you can afford. By arriving at Future Chevrolet of Sacramento with a firm budget in mind, we can point you straight to the cars that make sense for you.
Once you decide on the car you want, it is time to pay for it. This will normally be a combination of a down payment from you and the remaining balance from your lender. If you already own a car, you can trade it in to cover some or all of your down payment. Some lenders will cover the full amount of a car with a no-down-payment loan, but we don't recommend that option. Whichever option you choose, when you drive off in your new car, we have been paid in full. Now you start making payments to your lender.
How Do Car Loans Work?
When you get a car loan, you're borrowing the amount of money needed to buy your car (again, either the full amount or whatever is left after your down payment). But it isn't free––you're paying interest on that money. When you apply for a loan, it is critical to look at the interest rates offered by the lender. Financing a Chevy through GM Financial is often the best way to go because we are usually able to offer very low interest rates.
You'll apply for a car loan in a similar way you'd apply for any loan. The lender will look at information like your credit history, credit score, and possibly your monthly income. It is less common for car lenders to ask to see paystubs and income statements, but it does happen sometimes. Your credit score and history will be the largest factor driving your interest rate. The borrower wants to see that you have a good reputation for paying lenders back. If you do, they'll reward you with a low rate. If you don't, you could get hit with a higher rate––it's the lender's way of protecting themselves.
Another detail that impacts the rate is the duration of the loan. Typical car loans last from three to six years. However, some go as long as seven years. The shorter the loan term, the better rate you'll tend to get. That's because the lender is essentially rewarding you for promising to pay them their money back sooner. The caveat is that a shorter loan will result in higher monthly payments. Still, if you can afford the higher monthly payments of a short-term loan, you'll spend less money overall.
What if Your Credit Score Is Bad?
If you have a bad credit score or, like many first-time car buyers, limited credit history, there are a few things you can do. First, you can see if a friend or family member with a good credit score will co-sign your loan. This makes them responsible for the car loan if you default, so it is a big ask and often only an option for younger buyers shopping with their parents. But if you can find a willing co-signer, you might get a better rate.
Another option is to put down as much down payment as possible. This won't lower your interest rate, but it will mean that you won't have to borrow as much money. Ultimately, you will pay less in interest simply because you're paying off a smaller amount.
You can also look into ways of building or repairing your credit. This might include paying down existing debt like credit cards or student loans before you start shopping. In some cases, applying for a higher credit limit from one of your credit cards but then not increasing your spending can result in a better credit score after just one month because your credit usage has improved.
Another option might be to go through our financing arm. We mentioned this earlier. You can go to traditional banks or credit unions to get a car loan, but you can also go directly to the car manufacturer. Most major brands have their own lending arm, including Chevrolet. They often offer better deals than credit unions or banks because they want to incentivize buying their brand and because there isn't a third party trying to profit off the loan.
Final Words on Car Financing
Remember, you are borrowing this money because, in the end, you will own the car. As long as you make payments on time, you become the full owner of the vehicle at the end of the loan. You can look at a car loan as an investment––especially if it is a car you use to get to work or make money in some way. But it is critical that you stick to the payment schedule, or else the lender might repossess your car.
As with any sort of loan, it's a good idea to shop around at different lenders before signing anything because one lender might give you a much lower rate than another. Even the smallest drop in the interest rate can make a major difference in your monthly payment. Also, be sure that you understand the full cost of driving your car. This might include fees and added costs to finalize loan documents as well as the California sales tax. If you find a car for which you can afford the down payment and the monthly payments, financing a Chevy is a smart move that gets you an amazing car without wiping out your savings.