When buying an automobile, the buyer has a few decisions to make, such as buying a new or used car, leasing a car or buying it outright. This article will discuss a critical decision a buyer is faced with: What is the best way to finance a car? Once the decision to purchase a new automobile has been made, most buyers will ponder the question, “What is it going to cost me?” Naturally, you want to get the most vehicle for the money. Finding the best financing option will allow you to do this.
Preparing yourself will go a long way when you finance a car. If you finance through a car dealer, you probably are not going to obtain a good interest rate for your loan. If you shop around, you will be surprised at the range of interest rates available. Frequently, your bank and/or other local banks, credit unions, and even insurance companies can offer loans. When you have obtained a good rate, take it to your dealer and see if he give you a better rate. Dealers often will be willing to do this for a potential buyer.
Financing Through A Dealer
A study several years ago by CNW Market Research estimated that nearly 63% of buyers prefer to finance cars through other sources rather than through a dealership. With this being said, a good way to negotiate a deal is to stay away from the dealership. Believe it or not, you can actually fax dealerships with your own calculations, bid request and other specific details about the type of car you want. Normally, they will fax their offers to you. You will then be able to pick and choose which dealerships are offering you the best deal. Do not accept a vehicle that does not entirely meet your transportation needs because a dealer offers a low financing rate or manufacturer incentives. Sometimes dealers or manufactures offer extremely low Annual Percentage Rate (APR) financing on vehicles that the dealer is having a difficult time selling. This is why you should have initially identified the correct vehicle before encountering the sales pitches and other influences of buying a vehicle.
Dealers will often offer financing through the finance arm of the automaker. For example, a GM dealer will offer financing through the General Motors Acceptance Corporation (GMAC), or a Ford dealer will offer financing through Ford Credit. Usually, the interest rates charged by these types of companies are higher than those available at local banks or credit unions. However, for many buyers, this may be the only available credit source.
Financing Through a Leasing Company
Many companies offer leases. Banks, credit unions and even insurance companies compete for the auto lease business. Therefore, shop around for the lease that offers you the most favorable terms. Negotiate good lease terms just as you would for the price of a new or used car. You do not have to accept a leasing company’s first offer.
Financing Through Bank or Credit Union
Frequently local banks offer lower interest rates than dealers on car loans. If you belong to a credit union, you might obtain an even better loan. Credit unions, unlike banks, are designed to serve their members rather than shareholders. They often charge lower interest rates and offer better terms. In many cases, however, credit unions require larger down payments than banks or other finance companies. Credit unions are a good option for people who are building credit for the first time or trying to reestablish good credit. To learn more about your state credit union league, go the CUNA website at www.cuna.org, or call CUNA, Inc. at 800-356-9655.
Finally, insurance companies often loan money to policyholders. Many auto insurance companies offer attractive rates. Most life insurance companies provide a single-payment loan on the cash value in your policy, which can be used to pay for your car. You can repay the loan as part of your regular premium payments.
Regardless of how you finance a car, a few important tips to remember are:
- Identify the various loan sources, such as banks, savings and loans, credit unions, and insurance companies. It can be useful to determine the cost of a loan from national sources. If the loan cost is comparable or nearly comparable between the two, we suggest you accept a loan from a local source.
- Compare the APR that each of the sources will charge for the loan. The cost of a loan is negotiable. Therefore, be certain to inform each source what the others have to offer. In addition to the loan’s APR, remember to also compare the other costs associated with a loan, such as loan insurance and processing costs.
- Determine the amount of down payment each lender requires. Most lenders require between 10% and 20% of the value of the car you are buying, depending on your credit. The less down payment you have, the higher your financing cost will be.
- Be certain to read and understand any fine print contained in the loan contract. Insist that the loan contract allows you the option of making payments early and that the payments will be applied on the loan principle with no penalty or extra cost if you pay off the loan early.
The bottom line is that your options are not limited. Always be sure to know all your financing options. By looking closer at various options, you may be rewarded with substantial savings. For more information regarding this topic, please contact Henssler Financial at 770-429-9166 or [email protected].