Car financing has enables folks who had no cash in hand own cars on the spot. You can start driving now and pay later however the car is not yours until you finish the payments. Most of the times new cars are pretty expensive and used ones end up breaking down because of a problem you failed to notice during purchase so people opt to buy new ones instead.

In 2010, the Detroit Free Press estimated the cost of the average new car was $29217. Another way to look at that was taken by Comerica Bank, which found in 2009 that the average new car (then costing ‘only’ $26,300) took 22 weeks of the average salary of an American family to pay for it.  The good news the study offered was that in 2009 car financing rates averaged only 3.45%, which helped make new cars more affordable to those who could qualify.  Indeed, with a 20% down payment (cash or trade-in), a $28,000 car would cost only $407 a month with a 60 month, 3.45% loan.

But don’t count on necessarily getting a low rate like this yourself.  The car financing you get will depend on a host of factors.  These include the prime rate (the ‘cost of money’ to the bank or financing institution), the length of the loan, whether the auto manufacturer is offering promotional rates on certain models and above all, your credit score.

Sourced from: http://www.autobytel.com/car-financing/what-is-car-financing-100496/

Well where does the money come from/ there are several different sources of car finance. You should also know that apart from the good side that you will be able to get a car sooner than you thought, the finance deal also has its cons.

Sources of Financing 

Dealership

Pros: Convenient, fast, sometimes competitive

Cons: High pressure, usually not competitive; be prepared for a big sales push on add-ons; loans are often front-loaded (payments are made up of more interest in the beginning of the loan than toward the end — that’s bad if you think you may be paying the loan off early.)

Bank or credit union

Pros: Competitive rates, personal service, no sales pitch for add-ons; often can tell you if you’re paying too much for a car; often provide free life insurance or disability insurance with loans; loans are usually simple interest loans (interest spread evenly throughout the term of the loan)

Cons: Not as convenient as dealership financing — can’t set it up at night or on the weekend.

Sourced from: http://auto.howstuffworks.com/buying-selling/car-financing1.htm

How much you end up paying while servicing the car loan is codependent on you. There are some mistakes that most people make when getting a car loan and this makes them pay more. It is therefore important that you learn and not repeat the same mistakes.

Car loan mistakes that can cost you money

1. Negotiating the monthly payment rather than the purchase price. Reed warns that buying a car based on the amount of the monthly payment is a trap. Although you should know what you can afford each month, don’t provide that figure to the salesman. If you do, you will forfeit your capacity for negotiating a lower purchase price. “Don’t let them turn you into a monthly payment buyer,” he says.

Once volunteered, a monthly car loan amount tells the dealer how much room is available to hide other costs such as a higher interest rate and add-ons. Reed says to negotiate the price of each cost category separately. “Minimize the individual pieces of negotiation — price, trade-in and car financing,” he says.

2. Letting the dealer define your creditworthiness. Reed explained that your creditworthiness determines your car financing interest rate. Your credit score (300 to 850) is your creditworthiness as a rating and is based on your credit report with the three credit reporting agencies — Equifax, Experian and TransUnion. A borrower with a high credit score qualifies for a better car loan rate than one with a low score. Shaving just one percentage point of interest from a $15,000 car loan over 60 months would save hundreds of dollars in interest paid over the life of the loan.

Sourced from: http://www.bankrate.com/finance/auto/5-car-loan-mistakes-that-cost-you-money-1.aspx