The American Dream, once a notion of hard work and reward, is now greatly based on financing. Financing allows people opportunities they would not otherwise have, like opening a business, buying a home, or purchasing a car to get to work (to pay for it all).

For most people, a car is the second largest purchase they make in their lifetime. Since financing is a way of life in America, it's important to know how it works so you can purchase with confidence. Although financing offers people a huge opportunity, it should not be taken lightly.

The concepts of sound budgeting, the importance of a solid credit history, researching options, negotiating, and making smart long-term financial decisions - all areas that are crucial components of being financially knowledgeable.

The vehicle financing industry is highly competitive, and those who take the time to educate themselves and do their homework will be in the best position to benefit from this competitive marketplace. 

Why Buy a Car?

In the South, it's a no brain-er. You can't go anywhere without one! In other areas of the country however, there are a number of reasons to consider purchasing a car when compared to commuting via public services. Here are just a few:

  • Increased job opportunities
  • Increased earning potential
  • More time for leisure and family (better quality of life)
  • Improve overall credit profile
Did you know that vehicle ownership has the potential to supercharge your credit score? Securing auto financing and paying those payments on time has a huge positive impact on your credit score. So, if you're just starting out, or needing to improve your credit, purchasing a vehicle could be a great way to prepare for bigger things down the road - like a house.

Getting Ready: Budget, Down Payment, Credit, and Co-Signing

First step to buying a car is to create a monthly budget. Make a list of what you are responsible to pay for every moth and what your income is, so you can determine how much you can afford to pay for a vehicle. You can find apps or software online to help you, or you can do it the old fashioned way with a spreadsheet or piece of paper. I suggest at least using something like Google docs so you have access to review it from anywhere, including the dealership when it's time to negotiate. 

Now you know what you can afford to pay monthly, it's time to figure out how much you have (or can save up) for a down payment. The higher the down payment you make, the lower the monthly payments will be over the course of the loan. You can afford a more expensive car if you have a good down payment. On the flip-side, if you have no down payment you may have to consider a less expensive car due to the higher payments it would require of you. It's also important to know that the amount of down could affect the rate you are offered. Another important factor to consider at this point, is whether you are trading in a car or not. If you have negative equity you will need to make up that difference, if you have positive equity will help with money down. Know your trade value at this point in your planning so you can be prepared.  After all of these considerations, you should now be able to determine a price range of the vehicle you can afford. Remember you will also need to add in taxes, tag, title, and any other fees that may be required.

Note: (general rule of thumb) For every $1000 you borrow, calculate $20 per month in payments. Example: $25,000 car (25 x $20) = $500/month payments (rough estimate). The better your interest rate, the lower the dollar amount per thousand dollars financed.

The next step is to have a look at your credit. There are a number of credit reporting companies (Equifax, Experian, Trans Union) where you can access and retain your credit profile. Visit - recommended by the Federal Trade Commission - to access your free annual report. Once you have the score and have verified everything on your profile, you can see what (if any) action you need to take next. Here are some ideas of things to work on before your auto purchase:
  • Improve your payment history - make payments on time and stay current
  • Lower your amounts owed - pay off credit instead of moving it around
  • Make the most of the length of your credit history
  • Shop wisely for new credit
  • Manage the types of credit you have - establish a good credit mix
If you have little, no, or poor credit history, you may need to consider a co-signer to help you secure the financing. Having a co-signer can help with total financing and allow you to qualify for a lower interest rate that you would not qualify for on your own.

Shopping: Vehicle and Financing Research

The vehicle shopping and research is the fun part of course, but you need to shop for financing as well. Just as you will be considering all of the makes and models in your price range, you should also be considering multiple financing options. Options include banks, credit unions, dealerships, and finance companies. Each one has its benefits, but some may be better suited to your current needs. For example, dealerships typically have relationships with a variety of banks and finance companies, which allows them to work with people of varying types of credit histories.
They type of purchase is another consideration: lease or purchase? Look into the many options before deciding. The best balance of auto buying decision making is:
  • APR
  • Monthly payment
  • Manufacture incentives
  • Down payment
  • Trade-in value
  • Overall cost of credit
  • Mileage caps
  • Term
  • Additional services
Time to Go: Application, Negotiation, and Purchasing

In the final stages of purchasing, you will need to fill out a finance application. Make sure not to fill out applications for multiple deals. Pick your number one and apply for that vehicle. You can have your number 2 or 3 in the waiting, but filling out multiple applications can adversely affect your score quickly.

Negotiate financing just as you would the price of the car. Know your options before you begin so you know what deal you should keep and which one to walk away from. Of course, the better your credit score and profile, the more options you will have available, and in turn the better deal you can negotiate. Be disciplined and stay within your determined price range, this will pay off in the long run.

After you have agreed on terms and vehicle pricing, you will be offered multiple other services and options for the loan. Listen and consider them all before declining or accepting, some will apply and be beneficial while some may not suit you.

Finally, when it's time to sign your contract, read carefully and don't be afraid to ask questions!

Questions? Comments?

Feel free to contact us at Anderson Subaru of Pensacola FL. We love Subaru's, but we love our customers more! Anderson Subaru specializes in new Subarus and pre-owned vehicles of all makes and models. We are here to serve you, wherever your adventure may lead.  Anderson Subaru is proud to also offer second chance financing to customers who have had credit trouble.

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Anderson Subaru | 7050 Pensacola Blvd. | Pensacola FL 32505 | 1.866.702.3189 | Your Adventure Begins Here!

Categories: Finance