Auto Financing 101 in Omaha, NE

Auto Financing 101 at O'Daniel Honda

If you’re getting ready to buy a car, securing an auto loan is a major step in preparing for your purchase. Buying a vehicle is a major investment, and getting the right auto loan for your needs will help you bring the model you want home with peace of mind. Auto financing doesn’t have to be complicated, so let’s go over each step of the process to set you up for success.

What Is Auto Financing and How Does It Work?

If you don’t want to pay the full price of a vehicle out of pocket, you can finance your purchase with an auto loan. When doing so, you borrow the money you need from a lender like a bank or credit union. You’ll use those funds to complete your purchase, and you’ll then have a set period of time to repay the amount borrowed plus interest. To better understand the financing process, take a look at these basic definitions:

• Interest Rate: This is the price the lender charges for the money you borrow. You pay it along with your monthly payments, and the rate is calculated as a percentage of the amount originally borrowed.
• Conditions Lenders may add conditions to auto loans, including guidelines about early payoff or penalties for late payments.
• Loan Term: This is the amount of time you have to pay off your auto loan. Most loan terms are either 36, 48, or 60 months.

Types of Auto Financing

Depending on your situation, you might have various financing options available for your next vehicle:

• First-Time Car Buyer Loans: If this is your first time buying your own vehicle, you might be eligible for this loan, which may involve waived application fees or a lower down payment.
• Secured Auto Loans: A secured loan is considered less of a risk for lenders because it is backed by collateral – which, in this case, would be the vehicle you’re financing. It usually involves a down payment, and because of the lower risk factor, it might come with a lower interest rate as well. If the buyer defaults on this loan type, the lender may repossess the vehicle.
• Unsecured Auto Loans: There is no collateral for this auto loan. Because it is then considered a higher risk for lenders, the unsecured auto loan may involve a higher interest rate. This loan type can be beneficial if you don’t plan to borrow much money in the first place.
• Auto Refinance: In certain situations, taking out a second loan can help you pay off your original auto loan. This may be the case if you have improved your credit score since you took out your first loan and you’d like to pay a lower interest rate.

Factors that Affect Auto Loan Rates

Lenders consider these aspects of calculating the interest rate of your auto loan:

• Credit Score: The better your credit score, the better your interest rate could be. Keep in mind that lenders will likely look at more than the score itself, as they tend to consider specific variables like your debt-to-income ratio.
• Loan Term: The length of the loan term can influence your interest rate, as shorter terms often yield lower rates. That’s because you’ll have less time to pay back the loan, and there would be less interest added to the cost of each monthly payment.
• Vehicle Age: Lenders usually view new models as less likely to break down and, therefore, less of a risk than an older model, leading to lower interest rates. New vehicles might also be available with unique promotional rates.
• Down Payment: When you make a high down payment, you lower the amount you’d still owe on the auto loan. This can lower the interest rate as well since there would be less to pay back.

How To Determine Your Monthly Budget

When weighing your options, it’s helpful to have a budget in mind. Sticking to a budget helps you stay within your means and avoid making a purchase that would strain your funds. Common car-buying wisdom holds that your automotive expenses should not exceed 15 percent of your monthly income. Those expenses aren’t just the price of the vehicle, though. As you budget for your purchase, remember to take into account the vehicle’s fuel costs, maintenance, fees, interest, and insurance. To see what kind of insurance rate you should expect, request a quote from your preferred insurance company.

Get Pre-Approved for an Auto Loan in Omaha, NE

When you’re ready to apply for an auto loan, we’ll make it easy for you at O’Daniel Honda. Our secure online finance application lets you get pre-qualified with just a few simple questions, and when you send in your answers, you’ll be on your way to bringing home the vehicle that’s right for you. Our finance experts are standing by to crunch the numbers for you to put you in a great position to buy the vehicle you want. We’re ready to work with you at 123 Beverly Drive, Omaha, Nebraska 68114.