Auto Financing 101 in Salem, VA

Auto Financing 101

When you get ready to buy your next vehicle, you can enjoy a convenient and rewarding experience here at our dealership in Salem. You can also count on the team at Berglund Ford Salem for an easy and stress-free financing process, and our staff can help you make sense of all the details involved with securing an auto loan. Let's look at each step of the auto financing process so that you can take your next steps with confidence.

What Is Auto Financing and How Does It Work?

To finance your vehicle purchase, you borrow the money you need from a lender, often a bank or credit union. Over a set period, you'll then need to make monthly payments until you've paid off the amount borrowed plus any interest that the lender charged for your loan. Since it's relatively rare to buy a new car entirely with cash, most car shoppers choose to finance with auto loans.

Next, get to know these financing terms:

Interest Rate: This is the price charged by the lender for the money you borrow. The lender determines this amount as a percentage of the actual loan amount.

Loan Term: This is the amount of time you have to repay the auto loan. Loan terms are usually 36, 48, or 60 months.

Conditions: Your lender might add specific conditions to your loan, including rules about early payoff or penalties for late payments.

Types of Auto Financing

There are different financing plans suited to various situations:

• Secured Auto Loans: This auto loan type is backed by collateral - in this case, the vehicle you're buying. That means that the lender can repossess the vehicle if you default on your loan payments, and this loan type generally has a lower interest rate than an unsecured loan. It might offer a lower down payment as well.
• Unsecured Auto Loans: For this kind of loan, there is no collateral, and your eligibility relies on your credit score. It often comes with a higher interest rate than a secured auto loan, and it can be a helpful means of ownership if you have reservations about your credit score or making a down payment.
• Auto Refinance: In some situations, it can work to your advantage to take out a new loan to pay off the original auto loan you started when you first purchased your vehicle. This can be beneficial if your credit score has improved or if you're seeking a lower interest rate.
• First-Time Car Buyer Loans: If you're buying your first vehicle, you might benefit from this loan type, which provides unique perks like lower interest rates. It might also feature a lower down payment, and the application fees could be waived in some cases as well.

Factors that Affect Auto Loan Rates

Multiple factors influence your auto loan's interest rate:

Credit Score: The higher your credit score is, the lower your loan's interest right could be. Lenders look at more than the score itself, though, and they might consider other details like your debt-to-income ratio.

Loan Term: Short loan terms often yield higher monthly payments with lower interest rates. That's because there's less time to pay off the auto loan. Even though the monthly payments of a short are higher than a longer loan term's payments would be, you end up saving money because you didn't have to pay as much interest on the original amount.

Down Payment: If you make a larger down payment, you can set yourself up for lower interest rates since there would be a lower amount to repay at that point. You can also use the value of a trade-in toward the down payment, so use our Value Your Trade tool to see what your current vehicle can do for you.

Vehicle Age: Since newer cars are considered less likely to break down, they often garner lower interest rates than older models. New vehicles might also be available with manufacturer or dealership promotional rates that you won't see with pre-owned vehicles.

How To Determine Your Monthly Budget

Staying within your means should be a priority whenever you shop for a new car. Conventional wisdom suggests that transportation expenses should be 15 or less of your monthly income, and those expenses include the auto loan payment as well as gas, maintenance, and insurance rates. To see what the insurance rates for the vehicle you want could be, ask for a quote from your preferred auto insurance company.

Get Pre-Approved for an Auto Loan with Berglund Ford Salem

You can get pre-approved for an auto loan before you ever set foot on a car lot, and we make it easy to apply for financing with Berglund Ford Salem. Just answer a few simple questions on our secure online form, then we'll get back to you with your options. When you're pre-approved, you can shop with confidence, and we're standing by to answer all your financing questions here at 834 East Main Street, Salem, Virginia, 24153.