One of the most exciting purchases you will ever make is that of your new car. It’s also one of the most expensive purchases you’ll make in your lifetime, so you need to be sure that you plan and do it smartly.
If you are like most people, buying a car is going to require financing to get it out of the lot and into your possession. Financing can be a confusing, difficult process, even if you have done it before! The terms are always different, and both sides are out to get the best deal – the car dealership and the financing company want to make their money, and you don’t want to give them more than you have to.
Most people will purchase ten to thirteen vehicles in their lifetime. This means if you don’t buy in a rational, intelligent way, you could be spending upwards of $100,000 in finance charges that you didn’t have to pay.
To avoid spending more than is necessary for your next car, consider these 8 ways to finance it that may get you the better deal and save you thousands of dollars.
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8 Ways to Finance Your Next Car
1. Avoid the long-term responsibility and lease your vehicle.
While you don’t get out of the financing aspect altogether, a lease is just a more specific way of renting a car for an extended period.
When you lease your car, you agree to structured terms like when to return it, what condition it must be in upon return, and how many miles you are allowed to put on the vehicle during your leasing period.
You may have an option at the end of the lease to purchase the car at a preset price if you choose to do so, at which time you may end up back in the financing world anyway. Check out this guide to leasing to learn more about the benefits of this type of vehicle finance.
2. Long-term bank loans
Many people walk into a car dealership with a maximum monthly payment in their minds. With this number as the main consideration as to their purchase, they may prefer a long-term bank loan. These are often five-year loans or 60-month financing.
The benefit to this type of loan is that your monthly payment is lower, so you can buy a more excellent vehicle and still keep to your budget. The drawbacks, though, are that it takes longer for you to build any equity in your car and your overall payment will likely be higher since much of what you are paying, in the beginning, will go towards financing and interest rather than principal.
Another concern with financing long-term loans is that it’s an easy way to get “upside down” in your loan. This means you will owe more than your car is worth for a while, so if you try to trade it in, you won’t get what you owe, and if you get in an accident and your car is totaled, or it gets stolen, your insurance will probably not pay you what you need to pay off your loan.
3. Short-term bank financing
With shorter loans, you may have a higher monthly payment, but you get your equity built faster. You will pay off your vehicle sooner, and you’ll spend less time in that “upside down” stage of car financing.
4. Credit union financing
Similarly to banks, credit unions have short- and long-term financing options. They are usually nonprofits, though, so their operating costs are less than a bank’s and those savings often extend to their members.
Credit unions can choose whether to lend to non-members, and they often do. Pros of this type of financing include lower interest rates and easier applications, as well as personalized customer service. However, they may deny your loan if you are not a member and there are not many branches for most credit unions, making it harder to do business with them.
5. Loans through online lenders
If you know how to research online, you can do some serious shopping around for competitive rates online. There are many corporate and individual lenders ready to give you money for your vehicle purchase and get your business.
However, before filling out an online application, check with the Better Business Bureau to ensure they are reputable, and watch the fine print in your loan terms. These types of loans often carry prepayment penalties, share your personal information with other lenders, and charge other fees.
6. Dealership financing
Dealerships may have a way to finance customers through their automaker’s banking. This type of financing can be more convenient and if you have good credit, your rates are usually very low. Those with bad credit may be approved more easily in this type of financing, as well.
7. Pre-approved financing
Basic loan shopping lets you compare interest rates, and once you are pre-approved for a certain amount, you can shop in that range without haggling. You already know the interest rate and the length of the loan, no matter which car you buy.
8. Credit card auto loans
Some people prefer the ease of using a credit card to buy their vehicle. If you have good credit, you may qualify for lower interest rates this way, but for others, the rates can be a lot higher. Still, getting pre-approved for a credit card auto loan may be easier for those who are looking to build or rebuild their credit.
Which Financing is Right For You?
Purchasing your next vehicle can be done in such a way that you have the upper hand. You do not have to walk into the dealership and be at their whim as to whether or not you are approved for the car you want at the monthly rate you can afford.
Instead, take the time to research your options. You can lease if you prefer not to have a long-term commitment, or you can take out a loan in many other ways instead.
With proper preparation, you can determine your next vehicle, your monthly payment, and choose whichever financing option fits your needs and your budget.