Whether you're buying or leasing a vehicle, it's essential to choose a model you can comfortably afford. If you opt for something beyond your financial means, you may struggle to make your car payments on time. This can cause you to be delinquent on your auto loan, which can lead to severe consequences. As such, you should carefully calculate your monthly car payment before you hit the dealership. This can help you determine how much car you can afford and properly plan your future finances. Check out this comprehensive guide to learn how to use a car payment calculator.

* These calculations are for reference purposes only. All figures are estimates only and are not guaranteed as accurate. Always consult a professional financial advisor.

Half of Americans used financing to secure their most recent vehicle, according to a 2023 study by The Zebra. Many people prefer financing because it lets them purchase a vehicle fast, often without even saving up a deposit. Financing can also help you secure a better car than you could afford outright and spread your payments out over time for better money management. At Huffines Hyundai Plano in Plano, Texas, we also regularly run specials that make financing an even more appealing option. Here's everything you need to know before financing your next vehicle.

Know Your Budget

Your car repayments will become another monthly bill for the life of your loan. Understanding how much you can comfortably afford to add to your monthly living expenses can help you create a reasonable budget. Your car repayments shouldn't exceed the amount left when you subtract your monthly expenses from your monthly take-home pay. You ideally want your car repayments to cost less to leave extra money for savings and emergencies.

Research the type of vehicles that suit your needs, then enter their prices and the amount of any down payment you've saved into our payment calculator to calculate your payment. Accepting a longer loan period can lower your estimated monthly payments. If your payments still seem high, you might consider purchasing a used vehicle or a different type of car. Choosing a car that suits your budget can help you afford the repayments and maintain ownership.

Understand the Financing Period

The financing period is the length of time you'll owe money to the financing company before owning the vehicle outright. The longer the financing period, the lower your monthly repayments will be. If you can afford higher repayments, choosing a shorter finance period is a better choice to reduce the amount you'll pay in interest over the life of your loan. Most car loans have financing periods between 24 and 84 months.

Factors Influencing Your Financing Arrangement

Lenders offer the best financial arrangements to the customers they feel are the lowest risk. These arrangements have the lowest interest rates and the most favorable terms. High-risk customers may have higher interest rates and less favorable terms. The criteria lenders use to determine an applicant's risk varies, but these are some of the factors that can influence your financing agreement:

     
  • Your credit score: Lenders ideally look for applicants with credit scores of at least 670.
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  • Your income: Lenders want to see you earn enough money to repay the loan.
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  • Your debt-to-income ratio: A ratio of less than 50% shows you have enough money after repaying existing debts to afford your installments.
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  • Current finance rates: Finance rates fluctuate over time.
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  • Competition: Lenders may offer more favorable financing to encourage you to sign with them over a competitor.
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  • Market conditions: During slow periods, lenders may offer better financing deals to encourage customers to take up their offers.
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  •     Promotions or specials: These incentives can offer better financing terms than standard loans. 

What You Need for Financing

Bringing important documents and items to the dealership can help you get approved for financing faster. Required documents can vary between lenders, but these are some of the things you typically need for financing:

     
  • Identification, such as your driver's license, a passport, or another government-issued ID with your name and photograph.
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  • Pay stubs from the last month to show your earnings.
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  • A copy of your most recent tax return.
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  • Proof of additional income, such as legal settlements or rental properties.
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  • Any down payment you've saved.
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  • Your credit report if you have a copy.
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  • A recent utility bill or mortgage statement, for example, to prove your current address.
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  • Title and registration for your current vehicle if trading it in.
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  • Proof of car insurance.
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  • A cosigner if you feel it'll boost your chances of securing financing.

Important Financing Terms

Finance professionals often use technical financing terms when they're dealing with customers. Knowing these industry terms can help you understand your finance agreement. Sound financial knowledge may even help you negotiate more favorable car loan terms. These are some of the financial terms you should understand before entering into a loan agreement:

     
  • Interest rate: The amount a lender charges in return for lending money to a customer, expressed as a percentage of the loan amount.
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  • Annual percentage rate: Sometimes shortened to APR, this is the loan's yearly interest rate and fees.
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  • Down payment: Any amount paid towards a vehicle to reduce the amount financed, often a combination of cash and the value of a trade-in vehicle.
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  • Negotiated price of the vehicle: The purchase amount the parties selling and buying a vehicle agree on.
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  • Principal: The amount of money borrowed from a lender before any interest and other fees are factored in.
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  • Total cost: The entire amount that someone pays for their vehicle, including the down payment, principal, interest, and any fees.
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  • Fixed-rate financing: Financing with an interest rate that stays the same over the loan contract term, as is most common with car loans.
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  • Repossession: The process of returning a vehicle to the lender if the person borrowing money doesn't make loan payments on time.
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  • Cosigner: Someone who assumes equal responsibility for the loan.
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  • Assignee: The lender, such as a bank or credit union, that buys the finance contract from a dealer.
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  • Additional products or services: Extra items included in the finance agreement, such as extended service contracts or credit insurance.

Remember that our finance team is there to help you. If you're confused about any of the terms they use, don't be afraid to ask them to clarify what they mean before you sign on for your loan.

Get Financing Fast at Huffines Hyundai Plano

Whether you've got your eye on a brand new Hyundai or a quality used car from one of the world's leading automakers, speak to our experienced sales team. They can introduce you to a vehicle that meets your needs and organize your financing. With our exclusive dealer specials, car financing at Huffines Hyundai Plano in Plano, Texas, is a convenient and affordable way to purchase your next vehicle.