How to Finance Your New Vehicle

Financing 101 at Apple Honda

When you’re shopping for a new vehicle, you’re also shopping for an auto financing plan that meets your needs. Our team at Apple Honda has put together a guide so you can find the right auto loan for you. Check out these helpful tips to get a better understanding of the auto financing world.

What Is Auto Financing and How Does It Work?

Simply put, auto financing is the act of borrowing money from a lender, bank, or credit union with the intention of paying it back over a set period of time. When you borrow money, you pay it back with interest in monthly installments. An auto loan has core elements like interest rate, loan terms, and conditions.

Interest Rate: The costs of borrowed money, typically seen as a percentage.

Loan Term: The set amount of time you have to pay the borrowed money back. Loan terms can last anywhere from 36 months (three years), 48 months (four years), or 60 months (five years).

Conditions: Stipulations of the loan agreement that must be followed. These conditions also indicate the penalties if you default on a loan.

Types of Auto Financing

Check out these common types of auto financing so you can choose the best one for your situation:

• Auto Refinance: This is the act of replacing your current auto loan with a new one, which helps you pay off the original loan.
• Lease Financing: You can lease a vehicle for a certain amount of time which typically ranges from 24 to 36 months. Think of leasing like renting a car, and when your lease is up, you have to decide if you want to buy the vehicle, return it, or start a new lease agreement. You do not own the vehicle when you lease it.
• Secure Auto Loans: The lender uses your vehicle as collateral, so if you default on your loan, then the lender can repossess your vehicle.
• First-Time Car Buyers Loan: This loan helps first-time car buyers by providing benefits like potentially lower down payments, waived application fees, and lower interest rates.
• Unsecured Auto Loans: Lenders base the type of rates you get on your credit score. This loan is known for having higher interest rates.

Factors that Affect Auto Loan Rates

Factors that affect auto loans include:

• Credit Score: The higher your credit score, the lower your interest rate. However, you should also consider your income and debt-to-income ratio.
• Loan Term: You can keep your interest rates down by having a shorter term on your loan. This means your monthly payments will be higher, but the costs of financing will be lower. You’ll actually save money in the long run.
• Age of the Vehicle: The age of your vehicle impacts the interest rates because the newer vehicle, the lower the interest rates. This is because newer vehicles are considered less of a liability.
• Down Payment: The amount of money that you put down on your new vehicle can also affect your interest rate. The more you put down, the lower the interest rate because you’ll be financing less.

How To Compare Auto Loan Rates

If you’re trying to find an auto that works for you, then it’s a good idea to reach out to a variety of lenders so you can compare terms and interest rates. Don’t forget to take into account the annual percentage rate (APR).

How To Determine Your Monthly Budget

Finance experts recommend you spend no more than 15% of your income on insurance, car payments, and transportation.

If you’re not sure what you can afford, then you first need to determine your monthly net income, which is the amount you take home after health insurance and taxes. Next, you need to make a list of vehicles you’re interested in and determine how much fuel and insurance would cost. Take that number and subtract it from your monthly income, and that is what you can afford.

If you’re unsure how much insurance would be, reach out to your preferred insurance company for a quote.

How to calculate estimated fuel expenses

You can calculate fuel expenses by multiplying the average distance you commute by 30, which is the average number of days in a month.

Once you’ve determined that number, you’ll need to multiply it by the current price per gallon; it’s a good idea to add an extra dollar to the price per gallon to account for any fluctuations.

How to Apply For Financing At Apple Honda

Our team at Apple Honda will work with you to help you secure an auto loan that fits your budget. You’ll never feel pressured to take a deal that doesn’t work for you, and we make it easy to apply for financing with our secure online application. All you have to do is put in information like employment and monthly income and then submit the form; then, our team will review it and contact you with some available finance options. Visit our dealership located at 1375 Route 58, Riverhead, NY, 11901; we look forward to helping you through the car buying process.