Finance

How does financing a car work

How does financing a car work

In How does financing a car work, you get the car you want from the buyer with aim of paying back with interest. The thing you just need to do is select the car you would want to finance from the car dealer’s shop or garage. After this, financing the car is the next thing. This only works if you do not have money to buy the car at the moment while it also works for people who have their cash for the car on them but want to use the money for other things like investment.

READ: What is equity financing

The car dealer which is the seller and you who want to finance the car as the buyer will execute a promissory note and with the promise of paying back a particular amount of money on the vehicle either every week or monthly. The interest rate is also determined as a dealer will never sell a car out to you on owner financing for you to be financing without collecting interest. The interest varies from dealer to dealers. Some dealers would collect 20% interest rate while another would collect 25% interest rate on a vehicle with the same worth in the car market. For example, if the worth of Honda civic 2017 model is worth $120,000 in the car market. If you want to finance this car in dealer’s garage or shop, dealer A might collect 20% interest rate while dealer B collects 25% interest rate.

How does interest work on car loan

Many people go into car financing to avoid the payment of bank charges on credits. Some also do car financing to raise capital to get another property. Both the dealer and the buyer benefits from the how does financing a car work as the dealer gets the car off ground very quickly to avoid payment of caring for the car before a buyer would come while the buyer gets the car from the dealer with an interest rate he would be able to pay in no time.

What is financing a car

READ: What is beta meaning in finance

Some tips to look into in car financing

  • If you want to do car financing, I would advise you to get a car that has its durability for a very long time and does not loses its value on time. One thing you should know about car is that it is a liability.
  • Get the car for the purpose of building capital and raising funds. Get the purpose of getting the car if it is going to be generating income for you or you are going to be spending on it which would certainly reduce your cost of living. You can try leasing the car out too to other buyers or using as taxi in a place where the taxi rate is very high (if the taxi rate is very high at your place, good for you then).
  • If you want to lend the car out to another borrower, make sure the interest given to the borrower is higher than the interest given to you by the dealer in other to be able to get financing the car done. For example if the interest rate you were charge is 20%, you can make the borrower pay 23% as the interest rate. You can also try mortgage payment.

READ: What is financing a car

  • If you were supposed to be financing the car monthly at the amount of $35,000 per month, you can make the borrower to pay you $10,000 per week. At the end of the month for you to pay the dealer, you get $5,000 extra into your account as the $10,000 mortgage payment at the end of the amounts to $40,000 which is $5,000 higher than the $35,000. The $5,000 is your own return which will serve as down payment to get another property.
  • You should know the tax rate on the car. If it’s a car with tax rate $2,000 monthly and you have to make mortgage payment of $35,000, know that at the end of the month, your total cost of car financing is $37,000
  • Consider the debt you have on ground. If the debt you have on ground is close or higher than the cost of How does financing a car work, I would advise you to get the debt paid before engaging in car finance as you might not be able to finance the car with debt at one side.

With these tips in this article on how does financing a car work, you should be able to get things properly done.

Tags
Show More

Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Adblock Detected

Please consider supporting us by disabling your ad blocker