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Understanding Vehicle Financing

  • Writer: David Greenslit
    David Greenslit
  • Dec 9, 2018
  • 1 min read

With prices averaging more than $20,000 for a new vehicle and $9,500 for a four-year-old vehicle, most consumers need financing or leasing to acquire a vehicle. In some cases, buyers use “direct lending:” they obtain a loan directly from a finance company, bank or credit union. In direct lending, a buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership enter into a contract and the buyer agrees to a vehicle price, the buyer uses the loan proceeds from the direct lender to pay the dealership for the vehicle.

Consumers also may arrange for a vehicle loan over the Internet.

The most common type of vehicle financing, however, is “dealership financing.” In this arrangement, a buyer and a dealership enter into a contract where the buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. The dealership may retain the contract, but usually sells it to an assignee (such as a bank, finance company or credit union), which services the account and collects the payments.

 
 
 

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