How does financing a car work?
When looking for a way to finance a car or truck, understand your options to make the right choice for you.
What are my auto financing options?
There are a number of financing options available: auto purchasing, auto leasing, auto refinancing, auto lease buyouts and even personal loans.
Financing an auto purchase
You can pay the entire negotiated price of the vehicle using cash (also known as a down payment), financing, the value of your trade-in, or a combination of these. Car dealers can often provide in-house financing for your vehicle purchase, but it’s wise to speak with other lenders as well so you can make an informed decision. Prepare a list of questions and ask for details on total price, the length of the loan (commonly referred to as the “term,” expressed in months), the annual percentage rate (APR) and potential penalties.
Lenders consider your credit history when offering you a loan, so . If you’re a U.S. Bank client, you can anytime for free in the U.S. Bank Mobile App or online banking.
There are a few other factors involved. Longer loan terms offer lower monthly payments but tend to be accompanied by higher APRs, meaning you’ll pay more for your vehicle in the long run. Conversely, a higher monthly payment will help you pay off your vehicle sooner, and the reduced interest will save you money over the term of the loan. Consider whether smaller monthly payments outweigh the potential for greater accrued interest. Research competitive APRs (they can vary considerably) and what different vehicles typically sell for, based on their make, model and age.
You may also wish to consider applying for so you know how much you can spend before you start shopping. If you’re pre-approved with U.S. Bank, you’ll receive a pre-approval letter you can bring to any of our participating dealerships for a simplified financing experience. You can shop in-person at participating dealerships or online in the .
Want to buy a used car from a private seller?
If you can’t find the dealership you’re looking for or would prefer to purchase from a private seller, we may be able to help. A personal loan from U.S. Bank can give you quick access to funds for your car-buying needs.
Financing a car with an auto lease
Like to drive a new car every few years? Leasing is a form of financing to consider when you don't intend to keep the vehicle indefinitely. You may need a down payment at signing and your monthly payments are based on the depreciation of the car over the term of the lease.
You’ll typically pay lower monthly payments on a lease than on a loan for a similar vehicle, especially if you can make a substantial down payment. However, leasing also includes some restrictions, such as maximum mileage and limitations on wear and tear. These could cause you to incur penalties or additional costs, especially if you want to , before the full lease term is up. Carefully consider the pros and cons of leasing vs. purchasing a car before deciding which option best suits you.
Once your lease contract is up, you’ll have a decision to make:
- Return the car to the dealership, pay off the remaining costs, and lease or buy a new vehicle, or
- Buy out the lease on the vehicle and keep it until you’re ready for a new one.
Refinancing a car
An auto refinance replaces a previously negotiated loan with a new loan with different terms (for example, if you took out the original loan at a higher APR, but interest rates have gone down since). Refinancing a car may put money back in your pocket if you can lower payments or pay your loan off sooner.
