Car Financing and Refinancing Auto Loans – Bringing Vehicle Ownership in the Forefront

The Bureau of Transport Statistics in 2008 reported that Americans owned 137,079,843 passenger vehicles or a little less than one car for every two persons. As the statistics continue to increase, it’s now undeniable that car financing and refinancing auto loans will be vital factors to help customers acquire the cars of their dreams. Both means empower consumers on their vehicle purchase by providing flexible and affordable resources to buy cars.

What’s the difference?

Auto financing is an outright loan taken for the purpose of buying a vehicle. The loan could either be from taking a personal loan, a direct car loan, or through getting a second mortgage on your property. A refinancing auto loan is essentially closing out one car loan to get another in order to pay lower monthly rates.

Which loan should a consumer apply for?

It depends on the consumer’s needs. For instance, if you have yet to buy a vehicle, you can apply for auto financing. Refinancing as the term suggests is option only available to those with an existing car loan already.

How practical is a car loan?

Many people would argue that since it is a loan, consumers who apply for it may end up getting burdened with payments. Unlike buying clothes or shoes for example, a vehicle will cost thousands of dollars in outright payment if you do not secure financing arrangements. When this happens, you place all your money in one investment and may not have enough anymore for other expenses. With financing means available, you can still have money left for emergency or other household needs. Such loan can also help you establish credit history you would later need if you decide to invest in a residential or business property.

Is a refinancing option practical?

It’s sensible because this allows clients financial flexibility. Consider this: if you’re paying $250 each month for a car and you suddenly have the option to pay only half, wouldn’t this free you from more worries? The money you save can be used for buying other necessities or you can even save it for rainy days.

What are the prerequisites for both deals?

Auto financing usually requires a client to submit pertinent documents such as identification papers, credit rating report, and proof of income. The customer submits all these along with an accomplished application form which will be examined by the approving company. If all goes well, then you can have the car you want.

In refinancing auto loan, the prerequisites may be slightly different. The company approving the loan may need to determine the current market value of the vehicle before they require relevant documents. For instance, if the balance owed on the loan is higher than the vehicle’s current value, the lending firm has the right to disregard the loan application immediately.

Both auto financing and refinancing bind loan applicants into legal financial obligations once the loan is approved. Borrowers are reminded to ensure the payment schedule is regularly complied with and other monetary requirements are settled within the agreed period stated in the contract.

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0% Auto Financing

0% auto financing means an auto dealership will give a car-buyer an auto loan without interest. While there is usually a down payment involved, the buyer will not have to pay interest on the amount borrowed. That’s right: 0% auto financing will provide a loan free of interest payments. This could seem like a great deal. But buyers need to know when zero percent financing works for their benefit and when it works against it.

Why zero percent auto financing is difficult to get: credit scores and loans.

Zero percent car financing is difficult to acquire because it’s usually offered to such a thin slice of qualified buyers. In order to qualify for any car loan, even one with zero percent, a borrower needs to have a good credit score. Only buyers with nearly spotless credit ratings can qualify. And even those buyers with some very slight tarnish on their credit scores could be refused.

Select vehicles and options often erase the 0% financing option.

Zero percent loans are only often offered as a financing option for the dealer’s choice of vehicle. Slower-moving vehicles are often tagged with the 0% financing incentive to move cars off the lot. This works fine for people looking for vehicles that aren’t selling well. But for buyers looking to buy a more popular vehicle, or for those searching for specific vehicle options, zero percent financing may not apply. While a dealer may be happy to provide someone looking for a car with, say, leather seats instead of cloth seats, the loan that previously didn’t have any interest may suddenly find itself coming with interest charges.

0% loans often discredits manufacturer’s rebates.

Auto dealers will often offer a 0% percent option to attract potential buyers to a dealership. When a buyer looks to capitalize on a manufacturer’s rebate as well as the 0% financing, the dealer tells her it’s one or the other. But this can sometimes work to the benefit of some borrowers. If your credit score doesn’t qualify you for the 0% auto financing, you can search out the manufacturer’s rebate and still save yourself money.

Zero percent auto financing can sometimes be more expensive than interest-charging loans.

Depending on the interest rate and a borrower’s qualifications, an interest-bearing loan can sometimes be more affordable on a month to month basis than options offering zero percent financing. Often, a dealership will offer a zero percent auto loan for a much shorter term than a typical, interest bearing loan. This quickened repayment schedule will cost the borrower more each month than a traditional, longer interest bearing loan. Let’s use an example. Say the loan amount for a new car is $20,000. Through a typical interest bearing account, and ignoring any down payment, a buyer would stand to pay off the loan in about 72 months. At 6.75% on the loan, the buyer would pay about $296.53 each month. With a zero percent auto financing option, that same buyer would need to make her payments in a far shorter period of time. Let’s say bout 36 months, which is typical for zero percent auto financing. Those $20,000 would cost our zero percent buyer $555.56 each and every month.

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