Looking to purchase a new vehicle, but want flexibility in how you pay for it? Financing a vehicle is a great option that many drivers turn to when they decide to buy a new vehicle.
Financing your vehicle allows you to manage your other expenses while making vehicle payments in small increments on a recurring basis. This guide will outline how vehicle financing works, and help you decide whether that’s the right option for you and your budget.
If you are in the market for a new vehicle, you’ll want to consider the core differences between leasing and financing a vehicle. Understanding the core difference between these two payment options is the first step in determining what’s right for you:
When financing a vehicle, you agree to pay off your debt through a payment plan, which includes interest payments for the duration of the plan. Once you complete the car loan payment, the vehicle is officially owned by you.
Leasing a vehicle is an option for drivers who want to drive the latest models. Leasing-to-own a vehicle is another option you should consider. Your monthly lease payments go towards eventually owning the vehicle at the end of the lease.
When you agree to financing a vehicle and make recurring payments to the dealership or the bank, you will also pay a predetermined interest rate. Interest on vehicle payments comprises a few things:
Down Payment: How much of an initial down payment can you contribute to offset how much you owe through the car loan?
Credit Score: Does your credit history show that you are reliable to be approved for a loan?
Length of Loan: The shorter the term of your car loan, the lower the interest.
Criteria for approval on vehicle financing approvals include: Your Income: Do you have a steady stream of income to make payments on time? Credit Score: Does your credit history show that you are reliable and capable of making recurring car payments?
Driver’s Licence: Do you have a valid driver’s licence?Age Requirement: Do you fulfill the age limit in your province to be approved for a car loan?
Fulfilling the car loan criteria above is the minimum requirement necessary to finance a vehicle and is subject to the vehicle dealership or bank institution that you are requesting a car loan from.