You're ready to buy a used vehicle, and you want to finance your purchase. Read this first!

Understanding the Finance Process | CarMax

When you’re in the market for a car, truck, or SUV, you’ve got two questions to answer: which vehicle are you going to choose, and how will you pay for it?

Unless you’re paying in cash, the answer to the second question will require you to borrow the money to finance your vehicle purchase. Lots of customers aren’t familiar with financing a vehicle, and they aren’t sure what to expect when they enter a store or dealership. Never fear — we’re here to help explain the financing process, and how to finance a car!

What is auto financing?

Financing means borrowing money to make a purchase, usually the purchase of a larger, costlier item, and entering into a contract to repay this amount over time with interest or finance charges. Typically, a customer makes a down payment and agrees to repay the balance by making monthly payments. The payment amount is determined by the total amount financed, the repayment term (number of months), and annual percentage rate (APR).

How auto financing works at some traditional car dealerships

Are you a skilled negotiator? Customer surveys have consistently shown that one of the things customers dislike most about the car buying process is the idea that they’ve been taken advantage of during the sale. At some traditional dealerships, the finance process is one area where there’s very little, if any, transparency about your financing terms. It’s up to you to negotiate the finance terms with the dealership, which is looking out for its best interests.

How financing works at CarMax

The finance experience at CarMax is different. Our finance process is designed to be transparent and stress-free, just like the rest of our car-buying experience. There are no hidden numbers or games. The offers come directly from our finance sources — usually within minutes of the application. At our stores, they’re available for review by you and our sales associates at the same time. You can choose from any available offer. You’re in the driver’s seat! We’re confident in the competitiveness of our offers, but you’re still welcome to replace ours with an offer from another finance source within three days of your purchase, at no cost.

Whether you come to CarMax or anywhere else, here are some important steps in the process:

  1. Research cars online and prepare for financing. Read up on the car buying process and get familiar with how to buy a used car. Get pre-approved in order to have a better idea of what you can spend on a vehicle. Establish a budget for yourself. Check out an online calculator and plug in different numbers like vehicle price, down payment amount, monthly payment, and APR. This groundwork will help you understand how much you’ll want to finance, or need to finance. You can also secure outside financing at this point, and bring it with you if you’re visiting a CarMax store.
  2. Know what you can afford for a down payment. This is important! Your down payment is key to helping you get the most competitive financing terms. Making a down payment will also lower your monthly payment.
  3. Visit a CarMax store or dealership. Once you’ve picked out a car, truck, or SUV, it’s time to explore your financing options.

At CarMax, all finance offers are based on four factors: your application information, your personal credit history, the vehicle you want to buy (its age, mileage, and price), and your down payment amount.

Your personal credit history plays an important part in the financing decision. When you have good credit, you have a better chance of getting approved and getting more favorable financing terms. Click here to learn more about credit scores, about the factors that can affect your personal credit history, and how to obtain a copy of your credit report.

If you visit a traditional car dealership to finance your purchase, be sure you understand how the financing process works. Check out the Federal Trade Commission’s guide to financing a car or truck.

You should also know that CarMax sales consultants aren’t paid to steer customers toward one financing option over another. They’re paid a flat commission based on the sale of the vehicle, regardless of how or if it’s financed. This lets them focus on helping you find the car that’s right for you.

“CarMax doesn’t haggle over your financing, and we don’t negotiate the APR with our customers,” says one CarMax financing associate at company headquarters in Richmond, VA.

“We’re serious about wanting to help our customers find the right solution to financing a vehicle that works for them,” our financing associate adds. “We work with the nation’s leading finance companies, and we have competitive financing for customers across a broad spectrum of credit. In our process, the finance companies we work with review the applications, and if approved, the customer could see one or more decisions to review and pick from.

“You can also bring your own financing when you shop at CarMax.”

CarMax’s finance sources include CarMax Auto Finance, Ally Financial, Inc., Capital One Auto Finance®, and a number of other industry-leading finance sources. These relationships help ensure a broad set of options.

We hope this helps as you prepare to seek financing for a car or truck purchase. For additional information related to financing a vehicle purchase take a look at our articles about budgeting for a car purchase and the importance of making a down payment.

Some helpful definitions of financing terms:

  • Amount financed: the amount of credit provided to you.
  • APR: Annual Percentage Rate, or APR, is the cost of credit expressed as a percentage.
  • Down payment: the amount of cash or trade equity you apply to your purchase.
  • Equity: the difference between your trade payoff balance and its value. It may be positive or negative.
  • Finance charge: the total dollar amount you pay for credit.
  • Retail installment contract: the finance agreement allowing for payment over time at a fixed monthly payment amount and APR.
  • Simple Interest: finance charge calculation based on the unpaid principal balance, number of days between payments and the APR.
  • Stipulation: additional documentation/action required to complete the transaction, like proof of income.
  • Term: the number of monthly payments provided for in the retail installment contract.
  • Total of payments: the amount you will have paid after you have made all payments as scheduled in the retail installment contract.
  • Total sales price: the total cost of your purchase on credit including finance charge, down payment and amount financed.