Having your own car is a sign of independence, and it can also be a necessity for some people. But since not everyone can afford the entire cost of a new or used car with cash, it’s important to explore your options for financing.
Different lending institutions offer a variety of loans and lease plans that may be more affordable than what you’re currently looking at. Of course, it’s crucial to compare these options before you choose one, so do some research before you go into the dealership with your checkbook.
Here are six different ways you can finance a car purchase:
Option #1: Loans from a credit union, bank, or car manufacturer
Credit unions and banks offer very similar loan options, though it’s important to do some research into the interest rates and other fees before choosing one. The advantage of these loans is that they usually have lower interest rates than potentially more expensive options like a car manufacturer loan.
However, they also typically require larger down payments (e.g., 20% of the purchase price) or have a limited loan term. If you want a loan with a lower down payment or longer-term, you may need to consider an auto manufacturer loan.
Option #2: Dealer financing
The advantage of dealer financing is that it often offers very affordable interest rates, especially if you have good credit. However, these loans are typically offered at terms that are much shorter than other options, so your monthly payments will be higher in comparison to other financing options.
You may even be able to finance your purchase through a title loan center, but be very careful when choosing this option. Title loans are typically very high interest, so you’ll likely owe much more than the car is worth over time.
Option #3: Financing through a mortgage company
If you’re buying a home, your mortgage company may be willing to finance the purchase of a vehicle if you apply for this option. This is an especially appealing option because it allows you to stretch out the repayment period over many years and then pay the difference each month instead of paying back the total cost of the car in one lump sum.
Of course, you can also use a personal loan from a financial institution to finance the purchase of your car. These loans offer lower interest rates than most dealer or manufacturer financing and require slightly larger down payments (e.g., 10% of the purchase price). Like with other types of loans, you usually have a limited number of years to pay off your loan.
Option #4: Leasing a car
Leasing has many pros and cons, just like other financing options. You do not have to worry about depreciation or selling the vehicle once your lease is up; you turn it in and walk away (or start driving again).
There are typically lower initial payments, but you’ll pay for this in the long run as you’ll pay more for your vehicle in total. So, if you can’t afford the whole purchase price, then leasing might be a good option for you.
Option #5: Purchase of new versus used car
Generally, it’s less expensive to finance a used car than to finance a new one. You can get better interest rates on used cars because you are not seen as being so much of a risk since the vehicle has already been driven for some time.
There are fewer options for financing used cars unless you purchase the vehicle outright at the time of purchase. That’s why it’s important to explore your options and compare monthly payments before you decide on a new or used purchase.
Option #6: Personal financing
If none of these options work for you, then it’s time to sit down and do some personal financial planning. This means taking a look at your monthly income and expenses and deciding how much money you can afford to put towards a car payment.
Maybe you can make a larger down payment on your car or put some money aside regularly to save for purchasing your vehicle. It’s often worth considering credit unions and banks, as they tend to offer better interest rates than dealerships.
The key to financing a car is research and understanding the factors involved. There are many loans and lease options, and it’s important to take some time before going into the dealership with your checkbook. This way, you know you’re making the purchase worthwhile. So, take the time to put in the work; you’ll be glad you did when the time comes.