Understanding Vehicle Financing

APPLYING FOR CREDIT
Most people use the dealership and its creditors to finance their vehicle purchase. Some advantages of dealer financing are as follows:
1. Everything is handled at the dealership
2. Competitive programs
3. Different finance sources to choose from
4. Dealership may be able to offer special programs from the manufacturer

When applying for credit, there are a few things you should know to make the process more comfortable. You will be required to fill out a credit application and the lending source will pull a copy of your credit report. Your credit report contains information on your history of payments and other public records. Dealerships can help you find the best credit source for you. Because they are a dealership, chances are they will have a relationship with many finance companies, banks and credit unions. Also, because of their volume done with each source, they may be able to receive a better rate than an individual would on his or her own.

THE PROCESS OF APPLYING FOR FINANCING
When you start the process of financing at a dealership, you will probably be working with the Finance and Insurance Department. Sometimes called the F & I Department, they will help you through the process and this is where you will be asked to fill out a credit application. The credit application will ask you personal questions and may include: your social security number, your home ownership/renting status, your job details and other financial information.

A copy of your credit report will probably be pulled. As mentioned above, the credit report will contain your financial information in regards to your credit history. Bankruptcies can be listed as well as other data pulled from public records. Detailed information is listed regarding your accounts including recent payments and balances. There is also a comment section which may contain collection information.

The dealership will probably sell your contract to a lender such as a bank, financial institution or credit union. A dealership might try more than one source if needed to get you financed.

The financial institutions that review your contract might have their own standards. They will review your contract against their programs considering information such as your credit report to evaluate your contract.

The financial institution will work directly with the dealership and notify them if they will purchase the contract from the dealership.

Be sure to ask your dealership if they offer any manufacturer rebates or specials. Sometimes these special offers have limitations, so be sure to know what you are getting.

You may be able to negotiate the APR (annual percentage rate) and terms.

YOUR APR INFLUENCES
Things that can affect your APR are as follows: current rates, current conditions of the industry, your credit report and special offers.

CREDIT SCORING
Each financing source may have its own set of programs and standards. When they evaluate your credit application, they will probably use an automated system to rate your application. They will then work with the dealership directly and let them know if they will purchase the contract and at what terms.

CO-SIGN
A co-signer may be utilized by some financial sources. A co-signer is reviewed for his or her credit history as well, and is held responsible for the contract too. The account will appear on the co-signer’s credit report. Please be careful when considering co-signing on contracts.

IS LEASING RIGHT FOR ME?
There are a few things to consider regarding leasing a vehicle. Leasing is similar to renting. The amount you pay monthly includes depreciation, rent, taxes and possibly fees. Some leasing programs allow you to purchase the vehicle after a term of leasing. Other programs require you to return the vehicle after your lease is up. Review all options and choose the program that is right for you and your needs. Be sure to look at the life of the lease offer, considering the beginning, the middle and the end terms. Understand the limits and know how long you need to keep the vehicle.

As with other programs, you may experience a fee if you end your lease early. You may also experience fees if you travel above the agreed-upon mileage of your lease program. Be sure to weigh these options before going into a lease program.

Certain manufacturer’s service recommendations may need to be followed to care for the vehicle at your expense. You should also check to see if you need a certain type of insurance with your leasing policy.

"Keys to Leasing Vehicle”, a publication of the Federal Reserve Board, contains more information about leasing. You can request a copy from:

Publications Services
Board of Governors of the Federal Reserve System
Mail Stop 127
Washington, DC 20551

This brochure is also available on the Web at: http://www.federalreserve.gov/pubs/leasing/

KNOW ABOUT CREDIT

Only sign a credit application if you are applying for credit. This will help to avoid errors on your credit report and score.

Except otherwise permitted by law, only people with written permission can obtain your credit report.

Some experts recommend reviewing your credit report yourself periodically to ensure the information it contains is correct.

Before financing a vehicle, make sure you know how your credit report will effect your application.

Review the offers and evaluate them based on overall savings and what meets the requirements of your budget.
Be sure any changes made are clearly documented and initialed by you and the dealership.

Know how any added products such as GAP effect your payment and contract.

Remember not to purchase things you do not want.