Wednesday, February 14, 2018

Financing a car: What are my options?

Financing a car: What are my options?

When buying a car, you have three options: pay cash, get a loan, or lease. So let's look at each option in detail, that way you can decide which option is best for you.


Cash

Obviously, buying a car outright is the way to go. You have no payments, so you'll save a ton of money on interest. And you can usually negotiate a pretty good deal when you're paying cash. But this isn't practical for most people because cars are expensive, and money is getting increasingly hard to come by these days.

However, you still have two options. Option A: You could take the money that you do have, and try to find a good condition, low mileage, older car. It might take some searching, but there are older vehicles out there with extremely low miles. And you can usually get them for $4-10k (depending on what it is of course).

Option B consists of using your available cash as a down payment on your next car. This will reduce the amount that you have to finance, which in turn, reduces your monthly payments.


Loan

If you're going to take out a loan, you need to know what your credit looks like. So pull your free credit file, and pay the extra $10 to see what your "Beacon Score" is.

Next, talk to your bank, or credit union to determine what kind of loan that you're going to qualify for. Often times, you can get a lower interest rate by dealing directly with your own bank. But if you decide to go through the dealer for financing, make sure that you negotiate the final price of the car, not just the monthly payment.

If you've had credit problems in the past, you may still qualify for a "Special Finance" loan. These loans are designed for people with a poor-to-average credit score, and a good (see: Current) payment history. Typically, a special finance loan will have a higher APR, but you'll be able get a decent car, and you'll be able to improve your credit rating too.

Should your credit be completely shot, your best option would be a Buy-Here Pay-Here dealer, as they only require that you have a job, and a down payment.

Lease

Leasing a car is considerably cheaper than buying one. Since you'll never own it, all you finance is the depreciation for the term of the lease, not the entire purchase price. So if you leased a $40,000 car for 24 months, and it had an estimated value of $26,000 at the end of the lease, you would only finance the $14,000 in depreciation, plus interest and finance charges.

This will save you thousands in interest and finance charges. Plus, all of your repairs (and sometimes maintenance) are covered by the leasing company. The only caveat is, you can't modify the vehicle in any way (wheels, stereos etc), as this will ultimately effect the vehicle's resale value at the end of the lease.

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