Not many people walk in to make a new car purchase with cash. In fact, 85% of new cars and 55% of used cars are financed.
Just because you don’t have cash on hand, that doesn’t mean you need to keep driving your 20-year old car. Don’t risk the safety of yourself and your family by refusing to upgrade. Instead, take advantage of financing options and start shopping for your new ride.
Keep reading to discover the variety of car finance options you have.
One of the most popular car loan options is dealer financing.
Dealer financing is often the most convenient way to buy a car since everything can be done in one day at one place. When you find a car that you love, you finance the purchase through the dealer. They’ll run your credit, settle on the purchase price, and offer you a loan.
Since dealers make a good chunk of their money through financing, they may be willing to negotiate more with you when you choose dealer financing. In addition, if you are buying a new car, many dealers have special offers throughout the year for 0% interest.
Tradition Bank/Credit Union Loan
If you don’t want to go through a dealer, you can use banks and credit unions to secure an auto loan.
This allows you more freedom when shopping for both your car and your loan. Now, you can find the perfect car through any dealer or private seller. And you can inquire about the loan rates and repayment terms with multiple lenders before signing with the best deal.
There are two different types of car loans you can get through a traditional lender, unsecured and secured.
An unsecured loan is a loan that is not tied to any asset. The lender is giving you the loan based on your financial history and credit score alone.
With an unsecured loan, the lender takes on more of a risk than with a secured loan. Because of this, you can expect higher interest rates. But, if you have a good enough credit score, you may not encounter this.
If you fail to repay the loan, the only consequence is that the vehicle may be repossessed. You may still be responsible for the full price of the loan but now you’ll have no vehicle.
A secured loan is a loan that is tied to an asset that you already own. Because these loans are tied to a physical item, you can generally get better interest rates. The most common example of this is a title loan, but you can use also use your home.
But how do car title loans work? To do this financing, you must own a different vehicle than the new one you wish to purchase. This is a great option if you have an older car that you don’t necessarily want to sell.
The lender takes into account the value of the owned vehicle and gives you a loan for that amount of money in exchange for the car’s title. If you pay back the loan in full, you get the title back. If you fail to pay back the loan, the lender legally owns the car and you will have to hand it over.
When it comes to car financing options, you can also consider leasing a vehicle.
Leasing a vehicle is different than the other options discussed because at the end of the lease, you don’t actually own the vehicle. With a lease, the dealer owns the vehicle and agrees to let you use it for a period of time.
To use the vehicle, you pay a monthly fee like you would with a loan. You have a set amount of miles you can put on the vehicle and are accountable for keeping the vehicle maintained.
At the end of the lease, you can choose to lease the vehicle again, buy off the lease and purchase the vehicle, or turn the vehicle in.
Leases are generally done with brand new cars and this financing option doesn’t require any down payment. This is a good option for someone who likes to upgrade their vehicle every few years but doesn’t want to pay the full price for a new vehicle each time.
What to Do If You Can’t Secure Financing
If you don’t have the credit score or financial history to qualify for any of these types of car finance options, you aren’t completely out of luck.
The easiest thing you can do is talk with a loved one who understands your financial situation. Ask them if they’d be willing to help out by being a co-signer on a car loan. By co-signing, they declare that they are willing to cover the loan repayment if you fail to do so.
This is a big favor to ask of someone as they could ruin their own credit score if you don’t repay the loan. So, only ask someone who trusts you and be ready to show them that you are able to afford the car payments.
If no one will co-sign for you, then you’ll have to start saving up money to buy your car with cash.
Which of the Car Finance Options Will You Pick?
Now that you know all of the car finance options available, it’s time to pick the one that best suits your situation.
If you’re looking for a specific make or model of a new car, you may want to go with dealer financing. But, if you want to look around for the best car available as well as the best loan terms, you’ll want to work with a bank or credit union. Other, less traditional options include leasing or using a co-signer.
Wanting to take a long road trip to break in your new ride? Head to the Travel section of this site to plan your first cross-country drive in your new vehicle.