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How does financing a car work?

Once you’ve chosen your perfect car, it’s time to figure out your financing. Here’s what you can expect in the financing process when you get an auto loan from your dealership:

Step 1: Complete a credit application

The dealership will have you fill out a credit application, which they will use with the lender to see what you qualify for.

Step 2: Determine the loan amount

Figure out a realistic monthly payment for your personal budget, taking your monthly salary and expenses into account. You should also consider what extra features you’re planning on paying for, since protection options are available to keep your personal assets and the vehicle safe for an additional monthly cost. Finally, make sure to also consider your insurance payment: if you opt for an insurance policy in which you pay monthly, make sure to factor this in—it may change what you can afford for your monthly car payment.

Step 3: Choose the length of your loan

With an auto loan, you can decide how long you want your loan to be—typically you can choose three to seven year options. The longer the loan, the lower the monthly payment, but it’s not always an advantage to lengthen your loan in order to have lower monthly payments. Often if your loan term is too long, you’ll end up paying more than your vehicle ends up being worth at the end of the loan.

Step 4: Decide how to submit your payments

Once you have negotiated a loan and payment plan you feel good about, it’s time to choose your payment method. If online payment is available, it’s a good idea to make your payments this way. Online bill payments are extremely convenient, as they will automatically come out of your bank account, ensuring that you’ll never miss a payment.

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