The concept behind car financing is very simple. Buy now, drive now, pay later. Car financing has made this possible, especially as the cost of new (and used) cars has soared.
In 2010, the Detroit Free Press estimated the cost of the average new car was $29217. Another way to look at that was taken by Comerica Bank, which found in 2009 that the average new car (then costing ‘only’ $26,300) took 22 weeks of the average salary of an American family to pay for it. The good news the study offered was that in 2009 car financing rates averaged only 3.45%, which helped make new cars more affordable to those who could qualify. Indeed, with a 20% down payment (cash or trade-in), a $28,000 car would cost only $407 a month with a 60 month, 3.45% loan.
But don’t count on necessarily getting a low rate like this yourself. The car financing you get will depend on a host of factors. These include the prime rate (the ‘cost of money’ to the bank or financing institution), the length of the loan, whether the auto manufacturer is offering promotional rates on certain models, and above all, your credit score.