Some borrowers who finance a car apply for preapproved loan status through a creditor such as a dealership or bank. A preapproved borrower can purchase any creditor-accepted vehicle with the preapproved loan amount just like using cash. Receiving preapproval makes car buying much easier, so it’s wise step to take before going car shopping.
Borrowers can find financing options through banks, car dealerships or loan brokers. The value of the new car will be the loan guarantee (i.e., the lender owns the car until the loan is fully repaid). Borrowers also may choose to self-finance by borrowing against the equity in something they already own, such as a house or retirement savings portfolio, or against the cash value of an insurance policy. In this case, the object borrowed against becomes the loan guarantee in event of payment default.
Financing companies–as well as loan terms and rates–can vary widely from lender to lender. The best option for a borrower seeking to finance an automobile is to apply to several lenders even if the borrower is approved for financing by the dealership selling the car. When it comes to obtaining car financing, it pays to shop around for the best deal.