Knowing About the Provisions in Auto Financing

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Just like most of the people, you may know what auto financing is by its definition and meaning, but may not know much about its provisions, implications, market, consequences and other aspects. Right from its name to its features, there are lots of things that you should know about automobile financing.
Starting with the different terminologies of auto financing, it is also known in different names in the auto finance market such as:
• Car finance
• Car financing or
• Auto finance
Irrespective of its difference in names, auto financing refers to a wide range of financial products that are aimed to provide people with the money required to buy a car and only a car.
• It can be provided in a diverse set of arrangements but cannot be availed at an outright payment or a full cash single lump payment.
• This type of loans or financing is usually provided by a traditional bank but it can be availed from other sources as well such as Liberty Lending and other kind of financial institutions.
• These types of payments are usually made directly to the car dealer or to the manufacturer of the car.
Allowing people to buy a car even if they do not have the required money, these loans can be availed both to the general public as well as to any business entity.
Though these loans have a wide range of options, the most common auto loan is the business contract hire. This is because it provides the companies with huge cash flow and tax benefits.
The two different financing options
According to The Federal Trade Commission (FTC) which is America’s consumer protection agency, there are two specific types of financing options that the consumers and businesses can avail: Direct lending and dealership financing.
Direct lending:
In this form of lending, the consumers get the loan directly from the lender such as a traditional bank, credit union or a finance company. The borrower has to repay the amount borrowed along with the interest over the agreed period of time.
• In this form of lending there is an agreement signed between the consumer and the lender or the dealer to buy a car.
• The customers usually know all the terms, rates, costs and other conditions of the credit in advance in direct lending before purchasing the car.
However, FTC provides a few words of caution for the consumers before they sign on any such contract. It says that:
• Consumers must shop around to find the best lender and the best loan that will have rates and terms affordable to them.
• They must ask and compare several lenders directly and then make a final choice based on the credit terms and rates to agree to buy a particular car.
• It also warns the consumers to be wary about lenders who promise to offer loans at low rate and favorable terms to people with bad credit rating.
• They must read the terms and conditions carefully and clarify specific things such as the rate of interest, necessity of collateral for the loan, and the time taken to repay the loan fully.
FTC specifically asks people not to give any other collateral for a vehicle loan as the car itself will act as one.
Dealership financing:
The other form of automobile financing is getting it financed through the sellers or dealerships. In this form of lending the agreement is made between the dealer and the customer. The payments are made as per the direct lending norms for a set period of time including the interest on the amount of money borrowed. However, there are few other possibilities in such form of lending.
Sometimes, the dealers of the cars may retain the contract but in most cases they typically sell it to credit unions, a finance company or a bank. They are called assignees that will provide the actual service for each loan account and will also be responsible for collecting the repayment installments.
There are three significant benefits to opt for a dealership financing instead of direct lending according to the car accessories blog best net review. These are:
• Convenience – The car dealers usually offer much more in cars and financing under the same roof. It is also convenient as they work for extended hours in the evenings than the banks and are open even on weekends.
• Choice– The consumers have a wide range of options to choose from as most of the car dealers have tie ups with a lot of different banks and finance companies.
• Special programs – The car dealers also offer a lot of special programs that may be sponsored by the manufacturer. These are usually designed to attract more buyers by offering them loans at low rates of interest and different other attractive features.
However, if you choose to select a specific program make sure that it is for the specific car model you want as these may have a lot of requirements and restrictions such as the duration of the contract may be shorter or the down payment may be larger. In addition to that, anyone who wants to avail such programs must have a significantly strong credit score to be eligible.
There is another type of financing available for cars called hire purchase method. In this method:
• The cars are bought on finance and the amount borrowed is paid back in regular installments. This can be spread over 12 to 60 months.
• In hire purchase you will need to make a down payment of at least 10% of the value of the car you wish to buy.
• This type of arrangement is usually made by the car dealers and it best and most competitive for buying new cars and not for the used cars.
However, all hire purchase loans are secured against the vehicle. This means the car is basically hypothecated to the bank or the lender and is actually not yours. You will not be the owner of the car until you make the last payment of your loan.
Now that you know about all the provisions and its features, make an informed decision.

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