The 2020 Ram 1500 comes with a 3.0L DOHC 24-valve turbo-diesel V-6 engine. It also comes equipped with EcoDiesel and a starting price tag of $38,585. And there are a lot of other reasons to get excited about the prospect of owning a brand new model.
Unfortunately, most of us don’t have $38,585 lying around in cash.
Just because you don’t have enough money doesn’t mean you’re out of luck. There’s still a way to afford the truck of your dreams through dealer financing.
If you’re wondering how to pay for a car, keep reading. We’re sharing with you everything you need to know about truck loans.
What Dealer Financing Is
What does financing a car mean? Dealer financing is a loan offered through an automobile dealership to its customers.
The loan is known as an indirect loan because it is then sold to a bank or a third-party financial institution. That institution buys the loans at a discount and then collects the principal and interest payments from the person who borrowed the money.
How to Apply for a Car Loan
How do car loans work? You may notice great financing rates in a TV ad or in a newspaper ad. However, don’t be surprised if you’re offered a different rate when looking for truck loans.
That’s because the interest rate you get has to do with a few personal factors such as your credit rating. If you have a poor credit history and a low credit score, lenders will offer you higher interest rates because you’re more of a risk to them.
Check Your Credit Score
Before you go to apply for a dealer financing loan, check your credit score first. If you notice anything wrong, immediately take steps to fix the issue(s).
If your score is too low to be eligible for financing, take some steps to bring your score up such as paying down some of your current debts.
Terms
The length of your loan or the term is another factor. The shorter the term of the loan, the lower the rate.
It’s important to remember that while shorter terms mean lower interest rates, it also can mean higher payments.
Used Vs New
The newer the automobile, the lower the rate is. Used cars have higher rates than new models most all of the time.
Geographical Location
Where you live also determines your rate. Rates may be higher in California than in Nebraska.
Rates may even differ between cities in the same state.
Other Factors
Other factors that affect a car loan through dealer financing is whether you can replay your monthly payments. They must learn a few personal facts about you, such as:
- Ability to make monthly payments
- What your monthly rent/mortgage is
- Your monthly income
- Employment stability
- Debt-to-income ratio
Keep in mind that the truck you’re buying will act as your collateral. The dealership will hold the title to the collateral until you’ve fully paid off the loan.
Learn the Lingo
If approved, you must sign a contract. Sign nothing unless you fully agree and understand what you’re signing.
Understanding the common terminology will help you avoid any potential problems.
Car Loan
A car loan is a contract between the lender and you. It states that the lender agrees to provide you with cash to purchase a vehicle.
You agree to pay back the lender an agreed amount over a specific period. You may also have to agree to pay additional fees such as interest and a loan fee.
Never leave the dealership unless you’ve signed the final contract. Otherwise, the terms of your loan could change if you see the words, “subject to financing” on your contract.
Interest/Finance Charges
Interest rates are also known as APR (annual percentage rates). This rate covers the lenders risks, costs, and of course, earns them more money.
Different lenders charge different interest rates. Factors discussed above such as your credit score and the term and type of vehicle you’re purchasing are factored in.
0% APR Rates
Some dealerships offer 0% APR rates. Those with a credit score lower than 680 are not eligible.
Taking advantage of a 0% APR usually means losing out on the cash rebate. And the terms of the loan are much shorter. While this can be a great deal, make sure you can make the higher monthly payments before you agree to the terms.
Cash Loan Term
The term is the length of time you have to pay back the loan. It’s usually expressed in months.
It’s not uncommon to see loan terms of 36, 48, and even 60 months. Always divide the term length by 12 so you understand how many years it will take you to pay off your truck payment.
Principal
The principal is the balance of the loan. At the beginning of the loan, it’s the entire amount.
As you continue to make payments, you’ll see the principal amount decline. Each month, your payment goes partly to pay down the interest while the remainder goes to pay down the principal.
Down Payment
Most car dealerships want you to at least put down a portion of money when you initially purchase it. You can use cash, your trade-in or a combination of both.
The down payment is subtracted from the principal. If you purchase a $40,000 car and put a down payment of $10,000, then the principal is only $30,000.
Monthly Car Payments
You’ll owe the same amount of money to your lender each month. There will also be a specific date when your car payment is due.
Click here to calculate your monthly payments.
Rebates
Many car manufacturers offer rebates. They do so to provide consumers with the incentive to buy a specific car.
Keep in mind that rebates are not a part of the dealer’s package. Rebates should not be a part of the sales price negotiation. You also have the choice to apply the rebate to your down payment, but only if you want.
What to Bring to Get a Truck Loan
If you are in the market for a car or truck, gather a few pieces of information before you head to the dealership. It will help make the process easier and you’ll get the right vehicle for your needs and your budget.
Here’s what to bring with you:
- Driver’s license
- Insurance car
- Title, registration and/or loan release
- Two most recent pay stubs from all places of employment
- List of references (excluding household members)
Get Pre-Approved
One easy way to find out if you’re eligible for dealer financing is to get pre-approved. That way, you walk in our doors knowing exactly what you can afford.
Our pre-approval process is simple. Just click here to get started.
Connect with us
