How to Finance a Car

Most people who buy new or used cars finance at least part of the cost. Interest charges for financing will vary and depend on several things, such as:

1. Who is lending you the money and for how long

2. The age of the car
3. The type of loan
4. Your credit rating and your present circumstances
5. The legal limits that may be charged

All lending agencies do not charge the same rates. Shop around for financing the same way you shop for the best price when you buy groceries or other commodities; the savings will make it worthwhile. Shop for financing before you buy the car.

Here are some sources of financing and their features:

• Credit union- One of the lowest rates. Available only to members.

• Savings and loan association- Loans available to holders of savings accounts.

• Bank- Loans available to holders of savings accounts. Installment loans available to people wilh good credit ratings.

• Car Dealer- Convenient, but usually costs more than the other sources, since the denier often sells your contract to a bank or finance company.

• Your life insurance company- Low-cost loan. You may borrow up to the cash value of your policy.

• Auto loan companies, such as G.M.A.C. (General Motors Acceptance Corporation), Ford Motor Credit Company, Chrysler Credit Corporation, Gen¬eral Finance Corporation, C.I.T. (Consumer Investment Trust), Financial Service, Inc., Com¬mercial Credit Corporation- Easily obtained, convenient. Com¬petitive with most other finance companies and banks.

• Finance and loan companies- Easily obtained, comparatively high interest.

Ask the credit source for the Annual Percentage Rate (APR), formerly called the “true annual interest.” APR is stated as a percentage, such as 14 percent. Federal law requires that it must be calculated accord ing to a formula set up by the government, which is computed consistently by all lending institutions. APR is calculated on the unpaid balance over the time period of the loan. For example, a $1,000 debt at I I percent APR costs about $60 in finance charges if paid in a year. A $1,000 debt at 14.5 percent APR costs about $85 in interest charges if paid in a year. Similarly, $3,000 at 11 percent APR costs about $541 if paid in three years; and $3,000 at 14.5 percent APR costs about $721 if paid in three years.

Compare the APR from several credit sources. Not only will it vary from bank to bank, and from credit union to finance company, but the same finance company (for example, G.M.A.C. or C.I.T.) charges often will vary from one automobile dealer to another. Since the dealer usually sells the credit contract to a finance company, he will not de-liver I he car to you until he is certain the finance company will buy the contract.
 

State law sets the maximum interest that can be charged on autos, which is determined by the age of the car. The older the car, the higher the finance charges can be, since the older car involves more risk to the lender that he will not recover his money.

Another thing to inquire about is the total charge. Besides APR, other charges may be doc (documentary) stamps, office expense, credit investigation, recording fees, title, tag, tax, and similar costs. On the buyer’s order form there may be a printed fee listing one or more of the above items.

Some buyers accept the services offered by the “friendly” auto dealer, who will obtain financing and even car insurance. All the buyer has to do is sign on the dotted line and pay so much a month. This is the easy way to finance a car, but it is also one of the most expensive.

The federal Truth-in-Lending law, which became effective July 1, 1969, requires that you be told the cost of credit before you sign for the loan. This law also requires that all details be stated clearly and that you receive a copy of the contract when you sign it. All blanks should be filled in or crossed out in the contract.
 

When you shop for financing, find out how many payments you have to make, of how much, and for how long. Ask what happens to you if the payment is late; will you be charged a late fee or is the car repossessed?

When you finance a car requiring monthly payments, you will not be billed each month the way you are billed for electricity, telephone, water, or gas. One young lady who financed a car almost had the car repossessed and her credit rating ruined when she did not make the monthly payments. The reason she had not sent a payment, she said, was that she had not received a bill.

It is usually possible to have credit life insurance included in your credit contract. This type of insurance pays the unpaid balance of the loan if you die before the loan is paid. If your family is not covered by enough insurance, credit life insurance is a good investment.

Be certain that you know the terms of a conditional sales contract or installment loan contract. Read the fine print. You will have pos-session of the car, but you must comply with all provisions of the contract. Usually you will have to agree to the following:

1. Make monthly payments until the loan is fully paid

2. Carry collision insurance until the loan is paid
3. Not sell the car until it is paid for
4. Be responsible for all damages
5. Keep the lender informed if your address changes

If you do not meet your regular payments or fail to carry out any other part of the contract, one of two things may happen. The entire amount of the loan can become due at once, or the car can be re-possessed and sold at auction by the holder of the loan. In some states, if the car does not bring enough money to pay off the loan and the expenses of repossession-such as court costs and lawyer’s commission you will have to pay the balance. You will no doubt be sued if you refuse to pay.