Financing – What you should know

If you decide to finance, make sure you understand the financing agreement before you sign any documents. You can take as much time as you need to review documents BEFORE you sign them.

1. What is the exact price you’re paying for the vehicle?
2. How much are you financing?
3. What is the finance charge (the dollar amount the credit will cost you)?
4. What is the APR (a measure of the cost of credit, expressed as a yearly rate)?
5. How many payments will you be making — and how much is each one?
6. What is the total sales price — the sum?

Should you finance at the Dealership?

In dealership financing, you and a dealer enter into a contract where you buy a vehicle and agree to pay, over a period of time, the amount financed plus a finance charge. The dealer may retain the contract, but typically sells it to a bank, finance company or credit union — called an assignee — that services the account and collects your payments. Dealership financing may offer you:

• Convenience. Dealers offer vehicles and financing in one location and may have extended hours, like evenings and weekends.
• Multiple financing options. The dealer’s relationships with a variety of banks and finance companies may mean it can offer you a range of financing choices.
• Special programs. Dealers sometimes offer manufacturer-sponsored, low-rate or incentive programs to buyers. The programs may be limited to certain vehicles or may have special requirements, like a larger down payment or shorter contract length (36 or 48 months). These programs might require a strong credit rating; check to see if you qualify.

Remember: Shop around before you make a decision about buying or leasing. Consider offers from different dealers and several sources of financing, including banks, credit unions, and finance companies. Comparison shopping is the best way to find both the vehicle and the finance or lease terms that best suit your needs.

Should you finance at your bank or credit union?

It is critical you understand the following contract terms and potential consequences if you are considering financing a vehicle through your bank or credit union.

Cross-collateralization Clause – Common stipulation in loan agreements under which a bank has a legal right to seize any or all assets pledged by a borrower (for different loans with the same bank) even if only one loan goes into default. Bankers justify this clause on the logic that a default sours the bank-client relationship, not a just a loan agreement.

Example Cross-collateralization Clause: Debtor hereby agrees that (a) a Default or an Event of Default under this Agreement is a default or an event of default under all the other Loan Documents and a default under any of such other Loan Documents is a Default or an Event of Default under this Agreement, and (b) the Collateral under this Agreement secures the Obligations now or hereafter outstanding under all other agreements between Debtor and Lender and the Collateral pledged under any other agreement with Lender secures the Obligations under this Agreement.

Articles on Cross Collateralization

• Cross Collateralization: The Credit Union’s Dirty Little Secret
• Credit Unions – That Nasty “Cross-Collateral” Clause!
• Beware of credit unions and cross-collateralization
• “Let the Borrower Beware” When Dealing With Credit Unions
• Late on your credit card bill? Your auto could be seized

Right of Offset, Right to Offset, Right of Setoff – In order to cover a loan in default, a bank has a legal right to seize funds of a guarantor or the debtor. A settlement of mutual debt between a creditor and a debtor through offsetting transaction claims is also known as setoff. Through this settlement, a creditor can collect a greater amount than they usually could under bankruptcy proceedings. When a setoff clause is entered into, the bank can seize the customer’s current deposit. A bank exercising a right of setoff must fulfill the following conditions:

1. the account from which the firm transfers funds must be held by the customer owing the firm money;
2. the account from which the firm transfers the money and the account from which the money would otherwise have come, must be held with the same firm;
3. both account must both be held in the same capacity by the customer; and
4. the debt must be due and payable.

Example Right of Offset: Any indebtedness owing from Bank to Borrower may be set off and applied by Bank on any indebtedness or liability of Borrower to Bank, at any time and from time to time after maturity, whether by acceleration or otherwise, and without demand or notice to Borrower. Bank may sell participations in or make assignments of any Loan made under this Agreement, and Borrower agrees that any such participant or assignee shall have the same right of setoff as is granted to the Bank herein.

Articles on Right to Offset

• Answers about the Right of Offset
• What is the “right to offset”?
• What is the right to offset?

Acceleration/Escalation Clause – Provision normally included in loan documents, mortgage agreements, and other debt instruments (such as bonds and notes). It gives the lender the right to demand the entire loan amount (principal plus interest) to be paid at once, in case the borrower fails to make payments (defaults) or gets into serious financial difficulties. A loan document details (often in fine print) which actions or events can trigger the acceleration clause. Some banks include unspecific terms such as “if the bank otherwise deems itself insecure” to widen the scope of default. Also called call clause. See also act of bankruptcy.

Example Acceleration/Escalation Clause: In the event of default in the payment of any of the said installments or said interest when due as herein provided, time being of the essence hereof, the holder of this note may, without notice or demand, declare the entire principal sum then unpaid immediately due and payable.

Articles on Acceleration/Escalation Clause

• What Is an Acceleration Clause?

Vehicle Financing Options

Know your options when it comes to vehicle financing. Being better prepared before you purchase your next vehicle can help you make the best decision.

Your Finance Options

Buying a Used Vehicle

You have two choices: pay in full or finance over time. Financing increases the total cost of the car because you’re also paying for the cost of credit, including interest and other costs. You also must consider how much you can put down, the monthly payment, the financing term (such as 48 months), and the annual percentage rate (APR). Rates usually are higher and financing periods shorter on used cars than on new ones.

Buying a Used Car Guide

Simple Auto Loan Payment Calculator

Use the calculator below to find out approximately how much your monthly payments will be on your auto loan.