How does financing a car work?

There are three main options for you to choose from: auto loans, auto leasing or auto refinance.

Financing a car with an auto loan

You pay the entire negotiated price of the vehicle using cash, financing, the value of your trade-in, or a combination of all three. Car dealerships are often able to provide in-house financing for your vehicle purchase, but it might be wise to speak with a lender as well so you can make an informed decision. Shop around. Prepare a list of questions and ask for details on total price, length of loan, interest rates and potential penalties.

Also, lenders consider your credit history when offering you a loan, so get to know your credit score. There are a few other factors involved. Longer loan terms tend to be accompanied by higher interest rates; consider whether smaller monthly payments outweigh the potential for greater accrued interest. Research interest rates and what different vehicles typically go for based on their make, model and age.

Learn more about auto loans

Financing a car with a lease

Leasing is a form of financing when you don't want to keep the car for longer than a few years. You pay on the depreciation of the car over the term of the lease and a down payment at signing.

Once your contract is up, the car goes back, at which point you will need to lease or buy a new car.

Leasing a car generally offers lower monthly payments, depending on how much cash you have for your down payment. However, leasing also includes some restrictions which could incur penalties or additional costs, especially if you want to end your lease before the full term. Carefully consider the differences between leasing and financing a car before deciding which is better for you.

Explore auto leasing

Refinancing a car

Refinancing a car may put money back in your pocket if you can lower payments or pay your loan off sooner.

To find out if refinancing can save you money, you’ll want to calculate the current value of your car. Kelley Blue Book or an online valuation tool can help. Also, compare rates and fees and know that your credit score also factors into the rate you’re quoted.

Discover car refinancing

Helpful articles on the car buying process

Things to know before you start shopping for cars and auto loans

Here are tips to find the right auto financing options for you.

Questions to ask before buying a car

Ask yourself these five questions before you sit down with your car dealer or banker.

What you should know about buying a car or truck

Deciding on how you will finance your car is a major step in the car buying process. Here are tips on the loan process to help you find the right one for you.