How does auto financing work?

Financing a car can be a pretty big decision. Auto financing allows you to mitigate your payments so that you can responsibly afford your vehicle and everything surrounding it each period. This can allow you to balance your financial needs. Having a financial plan can help free your money to cover other, more important expenses. Getting a car loan is a common practice, and below, we'll explain the aspects of auto financing and how it can be important for your future as a car owner.

What Is Auto Financing?

When you start financing a car, the financial institution that you work through lends you the money required to buy the car. In exchange, you pay this lender interest and fees to borrow the money over a set amount of time. This could be many months or years, depending on your financial plan. Before financing a car, it's best to thoroughly discuss the details of your financing ability with the agent in charge of your case. You can use this opportunity to ask any questions you may have about the financing process.

You can finance a car through a bank, credit union, online lender, car dealership, or independent finance company. Financing through a bank or credit union may help with the expenses, since other entities, such as online lenders, may raise interest rates as a way of payment for financing. If you don't want to finance your car through a bank or online lender, consider financing your car through a dealership. Working with the staff directly can help keep everything organized and in the company's hands.

When you finance a car, you'll need to apply for a car loan. If the company approves your loan, you can start making monthly payments until you fully pay it off and the financing is over. Companies split each payment into two categories. The principal payment goes toward paying back your loan balance, while your interest payment covers your interest.

As you consider your auto financing options, don't forget to consider the down payments. Having a down payment is essential for your financial plan. Without one, you may end up spending more money than your car is worth. Your down payment is important because your monthly car loan payment is determined by your loan amount.

The initial payment you make for a car lessens the loan amount you need to take in order to own it. In other words, the more you pay now, the less in total you need to pay later. And the less you pay later, the lower your interest rate. Annual percentage rates and loan terms also affect the prices of your loan. Different factors can affect these rates, such as your credit and whether you're purchasing a new or used car.

Why Should You Finance a Car?

Financing a car can be a good idea depending on your personal situation. If you pay your car in cash, then you avoid any loan fees or interest related to financing. However, paying in cash could mean that you completely lose your savings. If a financial emergency arises, this may cause you trouble down the line. Financing a car gives you the option to not drain your wallet right away, allowing you to get what you need and pay the rest later.

What Should I Know Before Financing?

One thing to keep in mind is how much you're financing. Interest increases the amount you pay for financing over time, which is why it's important to closely compare how much you finance and how much the car is worth. For example, if you don't make a down payment and finance the entire cost of that car, you may owe far more than your car is worth after a year of accrued interest.

You may want to consider using a dealership when you finance because you might find deals as incentives for purchasing with that company. For example, some dealerships employ a 0% financing rebates offer for their customers. Keep in mind that in order to get dealership benefits, you may need to purchase through that dealership for your vehicle.

When considering auto financing, another aspect you may need to address is your credit score. Each lender you consider likely has a different preference concerning credit scores. Your credit score needs can even change depending on what car you want. It's best to have as much information as possible before you make your decision. Every aspect of your plan can change how the financing process will affect you in the future.

Finance a Car With CarSmart of Farmington

With CarSmart of Farmington, financing a car can be simple. We are happy to help you understand the process of auto financing through our financial experts. No matter how new you are to financing or credit, we can help you find the perfect car and payment plan. Whether you have good or bad credit, we'll work to get you approved on a plan that works for you. Simply make an appointment with us, or fill out our Think CarSmart Pre-Qualification Form at your convenience.

If this is your first time financing or working with us, we have all the tools you'll need to get a financing loan started. To help estimate your needs, consider using our Loan Calculator. This calculator allows you to enter your information to get a quick estimate without needing an appointment or walk-in.

Want to start an auto financing plan soon? We'd love to hear from you and help you get started on financing your newest car with us. Whether you need to buy, sell, or finance a vehicle, CarSmart of Farmington can guide you through every step of the process, even if you've never done this before. If you'd like to speak to an associate, you can call our sales team at 573-747-4888, contact us online, or visit us in person to talk to an expert about your purchase. Reach out to us today to get approved in just seconds.


CarSmart of Jackson

2856 Sappington Dr

Jackson, MO 63755


Think CarSmart

4854 US Highway 67

Farmington, MO 63640