Posted on Tuesday, 14th September 2010 by Emily Smith
If you are buying a car, you may only see a handful of options available: buying it outright or financing it. However, if you limit your search and your buying options to those two, you are cutting yourself short.
The following is a list of financing options available that you should consider if you are unable to purchase the vehicle outright:
1. Bank Financing: Bank financing is the most common way of financing the purchase of a vehicle; it is the method chosen by more than 50% of all car buyers. Bank financing involves the acquisition of a loan from the bank, or other such lender, and it usually involves a medium-term of 2 to 6 years. This option, although the most common, also leaves you open to a higher interest rate than other options and to such, a higher monthly payment, as well as a variety of fees you would have to pay at the onset of the loan. These fees are usually covered by a down payment or are rolled into the loan itself.
2. Dealership Financing: Dealership financing is financing secured through a dealership rather than a lender. Even if the line is provided through a bank or other lender, when you secure financing for your vehicle at a dealership, the dealership gets a kickback. This kickback can be as high as 4% of the value of the loan. As such, it is best to avoid dealership financing at all costs unless you have extremely bad credit and are unable to secure any other form of financing.
3. Manufacturer Financing: Manufacturer financing has gained increasing popularity as more car manufacturers, such as Toyota, have opted to get into the financial markets. When you see an advertisement for a 0% APR financing on a new vehicle purchase, this is manufacturer financing. Manufacturer financing can, in many cases, provide you with a better rate and even bank financing, if your credit is good. However, if you have bad credit, you may be surprised at just how high of an interest rate at which financing will be offered.
4. Self Financing: Even if you do not have enough money to buy a vehicle outright, you may well have enough to finance the purchase of the vehicle yourself. This is done through either a personal guarantee, as in the case of a personal loan, or through taking a home equity loan, or home equity line of credit, and using the funds obtained to purchase your vehicle. When you go this route, you can expect interest rates approximately 40% less than you would pay otherwise as well as smaller fees.
5. Leasing: Lastly, be sure to consider the option of leasing. While you would not only purchase the vehicle outright, in many cases, you would enjoy payment roughly two-thirds the size of traditional financing, and you have the option to purchase the vehicle at a reduced price at the termination of the lease contract. In addition, many leases, in order to preserve the vehicle, offer complementary maintenance, meaning that everything from your oil changes to your brake pads to your tires could be included in the lease price.
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Tags: Options, Options First
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