Vehicle Financing
Do you know ALL of your options when it comes to financing your vehicle?
When the time comes to purchase a vehicle, whether it’s new or used, you have options when it comes to vehicle financing. If you’re not going to pay the entire cost of the vehicle with cash, then it will need to be financed.
There are generally two vehicle finance options available: financing directly through your own bank or credit union or allowing the dealership to arrange financing. As a consumer, it is important to know what options are available and the benefits of those options. Below is some information, as well as some resources to help you make the right decision, given your unique financial situation.
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.
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.
- What is the exact price you’re paying for the vehicle?
- How much are you financing?
- What is the finance charge (the dollar amount the credit will cost you)?
- What is the APR (a measure of the cost of credit, expressed as a yearly rate)?
- How many payments will you be making — and how much is each one?
- What is the total sales price — the sum of your monthly payments and your down payment?
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.
Should You Finance at the Dealership?
When financing at the dealership, 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 the following:
Convenience. Dealers offer vehicles and financing in one location and may have extended hours, like evenings and weekends.
Multiple financing options. Dealers typically have relationships with a variety of banks, credit unions and finance companies, which may mean they can offer you a range of financing choices and terms that better suit your needs.
Special programs. Dealers sometimes offer manufacturer-sponsored, low-rate, or incentive programs to buyers. These programs may be limited to certain vehicles or may have special requirements, like a larger down payment or shorter contract length (36, 48, or 60 months). These programs may also require a good credit rating, so first 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.
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 known as a call clause. See also the act of bankruptcy.
Example: 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
Cross-collateralization Clause
A common stipulation in loan agreements under which a bank or credit union 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. Lenders justify this clause on the logic that a default on one loan sours the entire bank-client relationship.
Example: 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
Right of Offset, Right to Offset, Right of Setoff
In order to cover a loan in default, a bank or credit union has a legal right to seize the 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 an offset or setoff clause is entered into, the bank can seize the customer’s current deposit. A bank exercising a right of offset or setoff must fulfill the following conditions:
- The account from which the firm transfers funds must be held by the customer owing the firm money;
- 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;
- Both accounts must both be held in the same capacity by the customer; and
- The debt must be due and payable.
Example: 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
Simple Auto Loan Payment Calculator
Use the calculator here to find out approximately how much your monthly payments will be on your auto loan.