Lawrence, Tennessee
2282 N Highland Ave
Jackson, TN 38305
(731) 554-5000

How Does Car Financing Work? July 27, 2018

Lawrence, 2
How Does Car Financing Work?, 2, Tennessee

If you’re looking to buy a new car, you know the purchase is a financial commitment. You may want to consider car financing. It might sound confusing, but it can make buying a new vehicle much easier and more accessible. Below are the basics of financing a vehicle, along with what you should know before heading to the dealership.

A Guide to Car Financing

What Is Car Financing?

Car financing enables you to pay for a new or used vehicle through a loan. Direct lending and dealership financing are the two main choices. Direct lending involves securing a loan from a lending institution, such as a bank. Similar to a mortgage for a house, you pay back the bank with interest.

With dealership financing, you secure a loan by signing a contract with the seller. As with direct lending, you still pay the total amount of vehicle over time with an additional finance charge. However, the dealership will sell the contract to a lending institution that will receive and keep track of your payments.

What Should I Know Before Financing a Car?

car financingDetermine if you can afford the monthly payments that come with the type of car you need. Before car shopping, try to save up for a down payment or plan to trade in your current vehicle. Both of these will lower your financing costs since these methods contribute to the down payment on your new car. If you owe more money on your vehicle than it’s worth, you’ll likely need to pay off the debt first. Then, check your credit score. Just as with any other loan, the dealership or lending institution will make sure you pay your bills on time, have minimal debt, and are in good credit standing. The lender might require a co-signor if you don’t.

Is Direct Lending or Dealership Financing Better for Me?

Direct lending allows you to shop around for different loan options since there are multiple places to receive car financing, including credit unions. You can be pre-approved for certain terms, such as the annual percentage rate and the maximum loan amount, which enables you to negotiate the vehicle’s price with the dealer.

While you can’t shop around for terms with dealership financing, it’s more convenient. You don’t need to spend time going from lender to lender trying to find which one offers the best rates and terms. Dealership financing also gives you more options, since they work with multiple banks and institutions. A final benefit is that the dealer may have a special from the car’s manufacturer to lower the rate or offer incentives.


If you’re on the hunt for your next vehicle and need car financing, visit American Motors of Jackson in Tennessee. They’re known for providing a no-hassle, stress-free car shopping experience. With more than 20 years of business, they’re proud to be the go-to place for high-quality, reliable used cars. They have a wide variety of makes and models, including Cadillac®, Ford® and Jeep®, all available at reasonable prices. Give them a call at (731) 554-5000 or visit their website to learn how quick and easy it is to get car financing.

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