back to articles | December 31, 2018 | Greg Thibodeau

Categories: Auto Loans & Financing Vehicle & Buying Research

Car Payment Options

What Car Payment Options Are Available

We are often asked what car payment options are available. Basically, you have two car payment options: pay in full or finance over time.

If you finance your car, the total cost of payment for the car increases. That's because you're also paying for the cost of credit, which includes interest and other auto loan costs, and increases your payments.

When deciding your car payment options, you'll also have to consider how much you can put down, your monthly payment, the length of the car loan, and the car loan's annual percentage rate (APR). Keep in mind that annual percentage rates usually are higher and loan periods generally are shorter on used car loans than on new car loans.

Dealers and specialty finance lenders offer a variety of car loan terms and payment options. Be cautious about advertisements offering financing to first-time buyers or people with bad credit. These offers often require a big down payment and a high APR.

If you agree to payments on financing that carries a high APR, you may be taking a big risk. If you decide to sell the car before the loan expires, the amount you receive from the sale may be far less than the amount you need to pay off the loan. If the car is repossessed or declared a total loss because of an accident, you may be obligated to pay a considerable amount to repay the car loan even after the proceeds from the sale of the car or the insurance payment have been deducted.

If your budget is tight, you may want to consider paying cash for a less expensive car than you first had in mind.

If you decide to finance, make sure you understand the following aspects of the auto loan agreement before you sign any documents:

  1. Know the exact price you're paying for the car
  2. Know the amount you're financing the car for
  3. Know the finance charge (the dollar amount the car loan will cost you)
  4. Know the annual percentage rate, or APR (a measure of the cost of credit, expressed as a yearly rate)
  5. Know the number and amount of loan payments (use our loan payment calculator)
  6. Know the total sales price (the sum of the monthly payments plus the down payment)