What Does It Mean to Finance a Car?

Financing a car is a common practice in the United States. It’s also known as auto financing or car loan financing.

Whether you’re financing a used car or a new one, the first step is to evaluate your budget. How much cash will you put down toward the total purchase price? How much can you comfortably pay each month? The payments will include interest, which is how much the lender charges for the loan. This amount is calculated as a percentage and will vary based on your credit history and other qualifying factors. Use the car payment calculator to help confirm your budget.

You can finance a vehicle through the dealer in many cases. However, we recommend shopping around for the best interest rate. Lenders will offer different rates based on your creditworthiness. The most well-qualified buyers are those who have a higher credit score and pose minimal risk of defaulting on the loan."

If you’re like most people, buying a car is one of the biggest purchases you’ll ever make. But it’s not just about the price tag — there are plenty of other factors to consider.

The first step is to evaluate your budget. How much cash will you put down toward the total purchase price? How much can you comfortably pay each month? The payments will include interest, which is how much the lender charges for the loan. This amount is calculated as a percentage and will vary based on your credit history and other qualifying factors. Use the car payment calculator to help confirm your budget.

You can finance a vehicle through the dealer in many cases. However, we recommend shopping around for the best interest rate. Lenders will offer different rates based on your creditworthiness. The most well-qualified buyers are those who have a higher credit score and pose minimal risk of defaulting on the loan.

If you’re in the market for a new or used car and want to finance your purchase, you may be wondering what exactly that means. What is financing? How can it help me buy a car?

To understand what financing means, think about the last time you applied for a credit card. When you got approved, it was because the bank or lender decided to give you money in the form of a loan. The same concept applies when buying a vehicle with financing — except instead of getting money from a bank or other financial institution, you get it from the dealer.

The dealer will often provide some type of incentive (like no down payment) if you finance through them as opposed to going to another lender. We recommend shopping around for the best interest rate. Lenders will offer different rates based on your creditworthiness. The most well-qualified buyers are those who have a higher credit score and pose minimal risk of defaulting on their loan.

The term “financing” is often used interchangeably with the term “loaning,” but there are some important differences between the two.

Financing refers to the act of borrowing money for a vehicle purchase, while lending is the practice of providing that money. The lender may be a bank or other financial institution, or it may be an individual. The financing company will charge interest on the loan, while lenders usually don't pay interest back to borrowers when they lend money.

How do you finance a car? The simplest way is through your dealer, who will arrange financing through a bank or finance company that they work closely with. You can also apply for financing directly through lenders like Ford Credit or Toyota Financial Services.

Financing Through Your Dealer

If you buy your car from an auto dealer and finance it through them, you'll likely end up paying more than if you financed directly with a bank or credit union (although some dealerships offer competitive rates). The reason for this is that dealerships make money off of selling cars—and lots of them—so they're incentivized to get as many customers into loans as possible in order to increase their profits