What is auto financing?

Auto financing is borrowing money from a lender to purchase or lease a car. The car is used as collateral to obtain the loan for the purchase price. The loan enables you to purchase or lease your car, and then you make monthly payments to the lender, until it’s paid for in full. If you are leasing a car, you must finance the lease through the car company. If you are purchasing the car, you can either use the car company’s financing arm, or you can obtain financing through a bank or auto lender.

Why might I need auto financing?

Do you have your eyes on that shiny new SUV or sports car? Unless you have the cash needed to fund the total purchase price of a car, you’ll need to borrow that money from somewhere. Conservative financial experts generally recommend paying for automobiles with cash whenever possible, because they are depreciating assets. But, cars are a large expense, and many people can’t save up that much money for the total purchase price. Luckily, there are many affordable ways to finance the purchase of a vehicle.

Why should I manage my auto financing?

Managing your auto financing is an important step in your overall financial plan. The more armed you are with knowledge, the better the deal you may receive. Know what you are getting in to beforehand. Your monthly car payment can be a large expense and eat into your budget. Before you sign that purchase or lease agreement, you need to make sure you can afford the monthly payment. Also, financing a car can be a relatively long term investment. If you’re purchasing your car, you will likely plan on driving that car for years to come. In addition, it can be very difficult and expensive to get out of a lease early. So, it’s important to plan ahead and make the best decision regarding your auto financing.

How do I manage the process?

The next step after understanding why you should manage your auto financing is learning how to manage it. Should you lease? Or, is buying a better option for you? You’ll need to run the calculations to understand  your monthly car payment. With a good understanding and management of your auto financing needs, you will also be better able to improve the financing rates. How do you get a good rate? There are many important factors that will determine your rate and what type of car you will be able to afford. Read more about how to find the best auto rates here.

Discover professionals in our network

Finding a professional in your area to help you improve your personal finances is another excellent step on your journey to create wealth and achieve financial freedom. A professional, such as a financial planner, has first-hand knowledge and experience with auto financing. These professionals can answer any questions that you may have regarding your unique circumstances and help you customize a strategy that will best fit your financial needs.

Explore our personal finance insights

Looking to learn more about your auto financing options? Immerse yourself in our insights that focus in more detail on how to better understand, manage and improve your personal finances.