What Does “Financing” a Car Mean?

When a consumer finances a car, they are essentially borrowing money in the form of a loan in order to purchase the vehicle. The loan is provided by a lender, and the consumer pays back the loan over time, plus interest.


The main advantage of financing a car is that it allows the consumer to spread out the cost of the car over time, making it more affordable. Another advantage is that it can help to build up the consumer’s credit score by making on time payments.


However, there are also some important considerations when thinking of financing a car. You’ll need to consider your budget, vehicle needs, and credit, among other things, in the car buying process.


Overall, financing a car is a decision that should be made carefully, taking into account all of the potential risks and rewards.

How Do Car Loans Work?

Many people choose to finance their car loan through a dealership or bank. Before financing is approved for a car, the finance company will complete a credit check. The finance company will also look at your current employment situation and how much money you make to determine if you can afford the car loan.


Many buyers get preapproved for an auto loan as part of this process, which can help you better plan your budget, secure an interest rate, and have more confidence when it comes to choosing your car.


Once your loan is fully approved and finalized, you will be responsible for making monthly payments. This payment will include principle and interest.


  • Principle is the purchase price of the vehicle that you’re paying down.
  • Interest is an additional charge you pay to be able to borrow money from a lender.


Interest rates come in the form of percentages and will be heavily influenced by your credit score. The higher your credit score, the lower the interest rate will be. However, there are plenty of options for bad credit car buyers to take advantage of.


You can make extra payments on the car loan to pay it off early and cut down your total interest payments. You will owe money on the car loan until it is paid in full. If you default on the car loan (fail to make your payments), you will be subject to late fees and even potentially repossession.

Different Types of Auto Financing

There are several different types of auto financing available to car buyers. The most common type of finance is a loan, which can be obtained from a bank, credit union, or other lending institution. Loans typically have fixed interest rates and monthly payments, and the buyer is responsible for the entire amount of the loan plus interest over the life of the loan.


Types of car loans include:



Another method of getting a car to consider is leasing, which allows the buyer to use the vehicle for a set period of time, typically two to four years. At the end of the lease, the buyer has the option to purchase the vehicle or return it to the dealership. Leases typically have lower monthly payments than loans, but the buyer does not own the vehicle at the end of the lease.


Each type of auto finance has its own advantages and disadvantages, so it is important to compare options before making a decision.

Getting Financed with Bad Credit

Getting a car loan with bad credit can be a challenge, especially for people who have struggled with delinquencies, bankruptcies, or repossession in the past. Luckily, there are several financing options that are specifically geared towards those with less-than-perfect credit scores. We’re here to help take some of that challenge away and help get you into your new car!


One common option is called subprime finance, which provides loans to high-risk borrowers at higher interest rates and more stringent repayment terms. There are many companies that specialize in providing car loans to people with bad credit, allowing them to access competitively priced finance while ensuring that they meet their repayment obligations. By understanding your options and shopping around for the best deal, you can get the financing you need to buy a new car even if you have a low credit score.


One important thing to keep in mind is that bad credit should be temporary. Even if you aren’t able to qualify for your ideal car financing right now, use it as an opportunity to build your credit and down the road you can get your dream car loan.