Information from the Washington State Department of Financial Institutions

The Basics Of Financing A Car

Figuring out how to pay for a new car is a vital part of the car-buying process. While not as fun as choosing your car's make and model, it's important to understand the basics of getting a car loan.

Here are the basics of auto financing to help you get you started.

Determine What You Can Afford

Before you choose your new car, take a look at your budget and determine what you can afford. Understand the total cost of the loan, not just the monthly payment.

Come Up With A Down Payment

Most lenders will require a down payment. Financial experts have long said that that 20 percent is the magic down payment number when you're buying a new car. But the vast majority of people are making far smaller down payments. An Edmunds analysis of new- and used-car purchases showed that the average car down payment was about 12 percent.

Check Your Credit Report

This will alert you to errors or things you need to fix on your credit report. You can request a free credit report once a year from

Compare Financing Options

You can get a car loan from a lender, like a bank or a credit union, or through dealer financing. Compare loan offers from several lenders.

  • Get A Quote from a Bank or Credit Union
    Banks, credit unions, and other lenders offer auto financing. If you know the vehicle you want to purchase, you can get pre-approved for a loan at a specific interest rate. Shop around and compare rates.
  • Compare with Dealer Financing
    With dealer-arranged financing, you obtain financing from a lender through a dealership. The dealer collects information from you and forwards that information to one or more prospective auto lenders.

    If you were pre-approved for a loan from a bank or credit union, ask the dealer to match or beat the loan rate and terms.

Questions You Should Ask When Comparing Car Loans

  • What is the annual percentage rate?
  • How much will I pay every month?
  • How many payments do I have to make?
  • What is the total amount I will pay?

Take Your Time

Don't feel pressured to agree to a deal right away. You have the right to take any paperwork home and review it before agreeing to any deal.