Auto Financing 101 Near Knoxville, TN

Auto Financing 101

Getting ready to finance a car near Knoxville, Tennessee? You can count on us for a great selection and expert help here at Rusty Wallace Kia Alcoa, and we want to make your car financing experience as easy as can be. If you’re curious about how financing works and what it takes to get an auto loan, let us answer your questions so that you can shop with peace of mind.

What Is Auto Financing and How Does It Work?

When you buy a car, you’re making an important investment, and it’s common for car shoppers to finance their purchase with an auto loan rather than pay the entire price upfront. When you take out an auto loan, you borrow the money you need from a lender, and you agree to pay it back with interest by a set date. Take a look at these essential financing terms for a clearer picture of the process:

• Interest Rate: The lender charges you interest for borrowing their money, and this price is added to the monthly payments of your auto loan. Interest is figured as a percentage of the amount you borrow.
• Conditions: Your lender may add conditions to your auto loan, from provisions regarding early payoff to fees for overdue payments.
• Loan Term: The loan term is the amount of time – usually 36, 48, or 60 months – that you have to pay off your auto loan.

Types of Auto Financing

Depending on your specific scenario, you have several auto loan types available to finance your purchase:

• Secured Auto Loans: A secured auto loan generally requires a down payment and can also involve a lower interest rate. Lenders consider this a low-risk loan because you must use the car you’re buying as collateral. If you default on the auto loan, the lender could repossess the vehicle.
• Unsecured Auto Loans: This loan doesn’t require collateral, and the lender uses your credit score to determine your interest rate. As lenders consider unsecured loans as riskier than secured auto loans, the interest rate could be higher. An unsecured loan could be a useful option if you don’t have to borrow that much money for your car.
• Auto Refinance: For some car owners, it can be useful to take out a second loan to pay off the original auto loan. This can be practical if you have raised your credit score since you bought your car and you want to pay off the loan with a lower interest rate.
• First-Time Car Buyer Loans: If you’re buying your first vehicle, this loan could make the purchase smoother with a lower down payment and fewer fees.

Factors that Affect Auto Loan Rates

The interest rate for your auto loan is determined with these influencing factors in mind:

• Credit Score: If you have a good credit score, the lender may charge a lower interest rate. Lenders typically look at more than the score on its own, though, and they could consider specific variables like your debt-to-income ratio.
• Loan Term: Long loan terms typically involve lower monthly payments with higher interest rates. Short loan terms generally have higher monthly payments and lower interest rates, which would mean that you actually pay less overall.
• Vehicle Age: Because lenders consider new vehicles as less of a risk, they may provide a lower interest rate for newer models. Manufacturers and dealers might also offer promotional rates for new vehicles, while such rates wouldn’t be available with older used options.
• Down Payment: If you make a high down payment, you can set yourself up for a lower interest rate since you would then have a lower amount to repay. Don’t forget that you can use your old car’s trade-in value toward your down payment, so use our online trade-in appraisal tool to see what your old vehicle can do for you.

How To Determine Your Monthly Budget

By establishing a budget for your next car, you can protect your pocketbook from a purchase that it’s not ready for. It’s important to shop within your means, and conventional knowledge holds that automotive expenses should stay within 15 percent of your monthly earnings. Be sure to calculate the true cost of ownership for any vehicle you’re considering, not just the number on the price tag. Remember to budget for the car’s insurance, maintenance, and fuel costs.

Get Pre-Approved for an Auto Loan Near Knoxville, TN

When you get pre-approved for financing, you'll be able to shop with reassurance, and we’re ready to help you find the auto loan that’s right for you. When you apply for financing with Rusty Wallace Kia Alcoa, our finance experts will crunch the numbers for you to find the right lender for your situation, along with terms that work for you. Get started today with our secure online form. We look forward to seeing you here soon at 4612 Alcoa Highway, Louisville, Tennessee, 37777.