What Is Financing a Car?

If you’re like most people, the question, “What is financing a car?” is probably one you didn’t seriously ponder until you were ready to purchase your first car. And that’s okay, because the goal of North Penn Mazda is to provide every customer with a rewarding, hassle-free financing process. Here’s an overview to get you started. 

Why Do You Need Car Financing?  

Unless you have a large amount of cash on-hand, purchasing a big-ticket item like a new Mazda car for sale will require car financing. This means applying for a loan so you can pay for the car and take ownership. You then repay the loan over an agreed-upon length of time, and once the loan is paid off, the car is 100% yours. 

The Five Pillars of Car Financing 

Financing at our Colmar, PA Mazda dealership has five main components: 

Loan Amount 

The loan amount you can borrow for a car largely depends on your credit rating. The higher your rating, the more trust a lender will have in your ability to repay the loan. If you have a low credit rating or are just starting to build your credit score, the interest rates and loan amounts available to you will be more restricted. 

Interest Rate  

This is the “fee” you pay for borrowing the money for the car. Interest rate is often expressed as an annual percentage rate (APR) — for example, five percent — that is charged on an annual basis. For example, if you secure a loan of $20,000, you would pay $1,000 of interest per year. 

Term  

The term indicates how long you have to repay the loan. A long term, like 60 months, might seem enticing because the monthly payments will be lower. However, keep in mind that the longer the loan term, the more interest you’ll have to pay. 

Monthly Payment  

The monthly payment includes the principal, the interest, and any other applicable fees. 

Down Payment 

When you buy a car, this is the amount you “put down.” The bigger your down payment, the lower your monthly payment and the faster you can pay off the loan.  

Learn More About Car Financing Near Philadelphia, PA 

North Penn Mazda has covered the basics here. Your next step is to get preapproved for financing and connect with one of our experts to review our latest finance and Mazda lease offers.