Understanding Car Financing
Getting a car financing offer:
how decisions are made
by: Sonja Griesbach
At Woody’s, we pride ourselves on transparency throughout the car buying process, including the financing process. To this end, we’ve gathered information to help you understand how creditors make decisions to give you a car financing offer. These decisions are based on four main factors.
- Vehicle selection: cost, age, and mileage
- Application information: employment, residence, and income information
- Credit history: information contained in your credit file
- Down payment: total of cash and trade equity
To get the best car financing offer, you should select a vehicle that fits your budget and provide as much down payment as possible. These two factors alone may increase your likelihood of approval, could improve your offer, and will reduce your monthly payment.
Factors affecting your monthly payment
Your monthly payment is determined by three major factors listed below in order of impact:
- Amount financed
- Term or length of contract
- Annual Percentage Rate (APR)
The following illustrates the impact of each
Amount financed: $17,500
APR: 10.00%
Term: 60 months
Amount Financed
Term in months
APR
Monthly payment
Comments
Term in months
APR
Monthly payment
Comments
$17,500
60
10.00%
$372
Base example
60
10.00%
$372
Base example
$15,750
60
10.00%
$335
Lowering the amount financed by 10% = 10% payment decrease
60
10.00%
$335
Lowering the amount financed by 10% = 10% payment decrease
$17,500
66
10.00%
$346
A 10% longer term = 7% payment decrease
66
10.00%
$346
A 10% longer term = 7% payment decrease
$17,500
60
9.00%
$363
A 10% longer term = 3% payment decrease
60
9.00%
$363
A 10% longer term = 3% payment decrease
