If you are considering buying a used car on finance from a dealership but would like to make sure that you understand all of the ins and outs first, you should keep reading. In this article you will find information on how car financing really works, so that you can walk into your local dealership knowing all of the facts.
The first thing you should know about car finance is that it is often the only option for a lot of people. Car financing is such as large industry because so many people have been affected by the recent recession, which has caused them to have less disposable income available to them instantly. Most people’s money is tied up in the equity of their home, so unless you are willing to put your house on the market to pay for your car, you should go down the car finance route.
Also, unless you are able to find a used car dealership offering zero per cent APR (Annual Percentage Rate) on its cars, you will need to pay interest on your purchase. There are two types of APR – nominal APR and effective APR, also known as EAR. Nominal APR is figured out by taking the actual interest rate that has been assigned to you by the lending company for your repayment period and then multiplying it by the number of payments that will be made in one year. Effective APR can be worked out differently for each company, as it includes any administration fees and monthly service charges; although this often means that it is a truer representation of the amount of interest you will need to repay.
When you apply for a used car finance plan your details will be run through a credit check. This is done to find out your credit history, which will show whether you are a good candidate for car financing. If you have a bad credit history you will still be able to apply for finance if you go through dealerships that offer bad credit car loans.
Once you have applied and have been granted your car finance plan you will be able to go down to the car dealership and choose your car. After you have signed all of the papers you can drive away with your car. You will need to meet all of your repayments, otherwise you could go into arrears, but the dealership will usually take your current circumstances into account when deciding your repayment plan, so you should be able to make your payments with ease.
