Financing 101 in Ann Arbor, MI

Auto Financing Basics

When buying a new or pre-owned car, it is usually necessary to obtain auto financing unless you plan to pay in full upfront. Understanding auto financing may seem daunting, but the experts at Subaru of Ann Arbor are here to simplify things for you. Whether you're shopping for a vehicle in Ann Arbor or elsewhere, we can help you grasp the fundamental concepts and terms, enabling you to navigate the process confidently. In this guide, we will cover the basics of auto financing, including crucial terms, different financing options, and money-saving tips.

Auto Financing Glossary

• Principal: The amount of money borrowed to purchase the car, excluding interest and additional charges. It includes the sticker price, dealership fees, and taxes that would have been paid if bought with cash.
• Interest Rate: Expressed as a percentage, this is the fee charged by the lender for borrowing the money, representing the loan cost.
• APR (Annual Percentage Rate): A comprehensive measure of the overall loan cost, including the interest rate and associated fees. It provides an annual perspective on the total expense of the loan.
• Term: The duration of the loan, typically noted in months (e.g., 36, 48, or 60 months).
• Down Payment: The initial upfront payment made towards the car purchase, which reduces the amount to be financed. Monthly Payment: The fixed amount to be repaid each month until the loan is fully settled.
• Total Loan Amount: The sum of the principal, interest, and fees to be paid over the loan term.

Types of Auto Financing

• Direct Lending: Obtain a loan directly from a bank, finance company, or credit union. Repay the financed amount along with an agreed-upon finance charge over a specific period.
• Dealership Financing: Enter into a contract with a dealership, which may then sell the contract to an assignee (such as a bank or finance company) that manages the account and collects payments.
• Leasing: Instead of purchasing a car, opt to lease it for a predetermined duration. At the lease term's end, you can choose to return the vehicle, purchase it, or lease a new one. Monthly lease payments are generally lower compared to financing the same vehicle purchase.

Tips for Saving on Auto Financing

Before entering the world of auto financing, it is crucial to check your credit score as it directly impacts the interest rate you will receive. A higher credit score usually results in better rates. When exploring financing options, don't settle for the first offer you receive. It is beneficial to compare financing options from different banks, credit unions, and dealerships to secure the most favorable rate.

While longer loan terms may seem appealing due to lower monthly payments, they often come with higher interest rates. In the long run, a shorter-term loan might be more cost-effective. Remember that every aspect of the auto-buying process, including financing terms, can be negotiated. Having multiple offers and being informed will give you a stronger position to negotiate.

To alleviate your financial burden, consider making a larger down payment if possible. This will not only reduce the amount you need to finance but also decrease the interest paid over the life of the loan. Before signing any agreement, carefully read and understand all terms, fees, and the specified annual percentage rate (APR). Be cautious of any hidden penalties, such as those for early repayment or undisclosed charges.

If you find yourself with a high-interest-rate loan, keep the option of refinancing in mind. Especially if better rates become available in the future, refinancing can help you save money.

Finance With the Help of Subaru of Ann Arbor

If there are any doubts or confusion regarding the financing process or terms, please reach out to the finance center at Subaru of Ann Arbor, where you can get pre-qualified in seconds. Our dedicated team will assist you in obtaining a suitable financing option that aligns with your budget, enabling you to drive away in your desired vehicle. It is vital to prioritize your financial well-being and avoid making hasty decisions that don't sit well with you. When shopping with Subaru of Ann Arbor, rest assured that we always have your best interests (including interest rates) in mind.