Understanding Vehicle Financing


With prices averaging more than $31,000 for a new vehicle and over $18,000 for a used vehicle,1 most consumers need financing or leasing to acquire a vehicle. In most cases, buyers can get more favorable financing by using "direct lending:" they obtain a loan directly from a financial institution, such as Provident Credit Union, rather than arranging financing from the dealer. In direct lending, a buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership enter into a contract and the buyer agrees to a vehicle price, the buyer uses the loan proceeds from the direct lender to pay the dealership for the vehicle.

What Influences Your APR

Your credit history, current market conditions, term of the loan, and type of vehicle are among the factors that influence your APR (Annual Percentage Rate). The biggest influence on your final rate is your credit rating, which is based on your credit history and other factors. Generally, you'll be able to get a lower rate if you've paid your monthly credit obligations on time. Provident Credit Union uses a FICO (Fair Isaac Corporation) score to determine your credit rating. You can learn more about FICO or check your scores at www.myfico.com. You can also find out more about what kind of credit you have by reviewing your credit report. This also helps you identify and correct any mistakes in your credit report, and is also recommended annually to help you monitor against any potential identity theft. To obtain a copy of your credit report, contact one of the three major credit bureaus:

Equifax Credit Information Services
TransUnion Corporation

Comparing APRs

If you are shopping around for the best rate, be sure you understand how factors such as the rebate and length of term can effect your monthly payment and total cost. Read about how dealer financing can actually cost you more in spite of a lower advertised APR, and other things you should look out for.

What About a Co-Signer?

Provident Credit Union allows you to have a co-signer on your loan application, which may help you to make up for any deficiencies in your credit history. A co-signer assumes equal responsibility for the contract, and the account history will be reflected on the co-signer's credit history as well. For this reason, you should exercise caution if asked to co-sign for someone else. Because many co-signers may eventually be asked to repay the obligation, be sure you can afford to do so before agreeing to be someone's co-signer.

Determining How Much You Can Afford

Before financing or leasing a vehicle, make sure you have enough income to cover your current monthly living expenses. Then finance new purchases only when you can afford to take on a new monthly payment.

The only time to consider taking on additional debt is when you're spending less each month than you take home. The additional debt load should not cut into the amount you've committed to saving for emergencies and other top priorities or life goals. Saving money for a down payment or trading in (or selling) your existing vehicle can reduce the amount you need to finance. In some cases, your trade-in vehicle will take care of the down payment on the vehicle you're buying. When reviewing your budget, you should also take into consideration other associated costs including fuel, license, registration, and insurance. Call your insurance company before you purchase your car to determine what the monthly insurance cost will be. Better yet, get a competitive quote on insurance from Provident.


The best time to apply for an auto loan is before you shop for the auto. That way, you will know exactly what your rate will be, and how much of a loan you will qualify for. You can do this by applying online at this site, or by visiting a Provident Credit Union community branch or by calling Provident at (800) 632-4600 (for loans, press 3 after connecting). Our loan applications also allow you to get a quote on GAP (Guaranteed Auto Protection) to cover what your insurance won't, Credit Protection to ensure your loan payments are made in cases of unforeseen emergencies, and Mechanical Breakdown Insurance (MBI), which can provide you valuable protection against expensive repair bills.

After Completing the Vehicle Purchase or Lease:

  • Be aware that if you financed the vehicle the lender holds a lien on the vehicle's title (and in some cases the actual title) until you have paid the contract in full.
  • Make your payments on time. Late or missed payments incur late fees, appear on your credit report, and impact your ability to get credit in the future.