Common Questions About Car Loans

How Much Will My Payments Be?

Since monthly payments have the biggest impact on your day-to-day budget it is natural that you’re going to be focused on them first and foremost. However, we usually can’t determine what your payments will be until we’ve received a completed financing application. You’ll also need to choose your vehicle of interest, and we’ll have to determine the terms of the contract. All of these items have an impact on how much you’ll pay every month.

At King of Cars we do things a little differently. Our modern approach is to disclose what your payments will be up front without having you go through the process of filling out a finance application. Since we offer In House Financing with no credit needed, our approvals are not based on credit which gives us the freedom to advertise the price of the payments (as well as down payment, length of term, and interest rate) even without knowing any of your information. Our easy financing process allows us to be transparent with all of our customers by providing all the numbers up front that most typical dealerships try to hide until they know your credit score.

Note that you should focus on the price of the car itself before you focus on the amount of your monthly payment. It’s good to know what you can afford, but you have to think about the full amount you’ll be paying as well.

How Much Will My Down Payment Be?

Down payments are usually determined by the make, model, and mileage of the vehicle you choose. You should plan on offering a down payment of $1000 to $6000, depending on the vehicle. Your trade-in value can often be applied to the value of the down payment, but it’s smart to have at least $1000 on hand when you come to shop for a car. You can also take a look at the asking price. Your down payment is generally going to be at least 20% of the asking price.

As part of our transparent pricing at King of Cars, we advertise the price of the down payment for each vehicle so you know exactly how much you need to have in order to drive out. There are a couple of programs that exist that allow customers to drive out even if they don’t have the down payment asked by the dealership.

(1) Deferred Payments - some dealerships offer deferred payment programs. This means if you have a down payment that is close to the asking down payment price, the dealership will allow you to “defer” the remaining difference into a payment plan which usually consists of larger payment amounts than the regular car payment. For example, if the dealership is asking $3,000 down on a vehicle and you have $2,500 down, then the dealership might go ahead and approve you to drive out the vehicle that same day if you agree to defer the remaining balance of $500 ($3,000 minus $2,500) in a short period of time, usually within 1-2 weeks.

(2) Layaway Program - some dealerships offer a layaway program that gives you the opportunity to place the vehicle of your interest on hold by placing a deposit on the vehicle (usually $250-500) and then allowing you to make weekly or bi-weekly payments until you have reached the full asking down payment price before they allow you to drive it off the lot. This is great for those that have fell in love with a particular vehicle but don’t have the funds to take it home that day so you can put the vehicle on layaway so you don’t risk anyone else buying until you have come up with the entire asking down payment price.

How is My Interest Rate Determined?

Most dealerships are going to charge the maximum interest rate they can get away with. A buy-here, pay-here dealership is providing a unique service to help credit-challenged individuals get behind the wheel of a car. Most banks or credit unions turn down such customers. We’re happy to help, but we’re taking on more risk by doing so. The interest rate helps to offset that risk.

Although most dealerships that offer in-house financing charge the maximum interest rate allowed by the state, as high as 26% APR, King of Cars charges a flat rate of 18% APR which results in lower car payments and a lower overall cost of lending to the customer.

You can try to negotiate your interest rate of course, so long as you’ve something to negotiate with. For example, bringing in a larger down payment may allow you to shave a couple of percentage points off of your interest, which can save you hundreds of thousands of dollars over the life of the loan.

Am I Required to Have Full Insurance Coverage when Financing a Vehicle? Are There Any Alternatives?

Almost all financial institutions that have approved you for a loan to finance a vehicle will require you to purchase a full coverage insurance policy throughout the life of the loan that will protect their collateral in case of physical damage or theft.

Since most insurance companies are credit-based, these types of policies can be very expensive for a credit-challenged customer. Luckily there are some alternatives offered by a few buy here pay here dealerships that will allow you to substitute a full coverage insurance policy for one of the following two below:

(1) Debt Cancellation Coverage: In the event of a total loss to the collateral (vehicle), the remaining payments due on the loan are canceled. This type of agreement is not insurance and does not include Comprehensive Collision coverage which means it will not cover repairs on your vehicle due to an accident. Because Debt Cancellation Coverage only cancels your debt on a total loss, it is generally much cheaper than a full coverage insurance policy. It is also very convenient because this type of agreement is usually billed with your normal vehicle payments allowing you the convenience to make both payments at the same time.

(2) Collateral Protection Insurance (CPI): This type of insurance used to be primarily known as force-placed insurance and was used by finance companies to protect its interest in their collateral if the customer’s full coverage insurance policy was to lapse or cancel. Now it is also sold at the time of sale in lieu of full coverage insurance and unlike Debt Cancellation Coverage which only protects you in the event of a total loss or theft, Collateral Protection Insurance includes repairing your vehicle in the event it is damaged. If the damages to the vehicle happen to be damaged beyond repair, then it will also pay off the remaining balance on your car loan.

Note: most states require you to maintain Liability Insurance. These products are just agreements between you and the finance company to fulfill their contractual obligations but you still have to fulfill the obligations of the law.

Don’t Forget About the TT&L!

Remember, purchasing a car means paying for more than the price of the car. You’ll also have to think about tax, title, and license fees, which must always be paid in addition to the down payment. If you don’t have the funds at the time of the sale these fees can often be rolled into your loan, but remember: this will raise your monthly payments. In addition, you’ll end up paying a lot more for TT&L if you handle things this way, simply because you’ll be paying interest on a larger loan.