What are your finance options when it comes to purchasing a car? When you buy a car, the financing can have a large impact on the total cost of the vehicle. You have several choices in how you pay for your car -- cash, dealer financing, third party financing, home equity loans, personal loans and leases.
Pay Cash for your Car
If you have the cash on hand to purchase a car, you may want to use it and avoid financing charges and the hassle of applying for a car loan. When interest rates are low, you're probably not earning much on your savings accounts. In fact, if you keep your money in your savings account at one percent, and finance your car at three percent, you're losing money. Before deciding to pay cash, though, consider a couple of things -- you shouldn't pay cash if it means using up your emergency savings, or if you can earn more investing your money than you'd pay for your auto loan. And never use tax-advantaged retirement savings to buy a car -- the tax penalties will kill you.
Car Financing with the Dealer
Dealer financing isn't necessarily a bad idea, but going into the negotiations blind is. If you're going to talk to the dealer about financing your vehicle, obtain a few other financing offers and get pre-approved with a third-party lender first. That way, you're not a captive customer and can negotiate the best deal on your financing as well as your car. Be aware too that the dealer will try to up-sell you extra packages like an extended warranty, or maintenance for your vehicle. If you finance these, they'll increase your loan amount and interest expense.
Compare your Car Financing Options Online
Differences in interest rates can add hundreds or even thousands to the cost of a car. Today, online marketplaces like LendingTree make it easy to compare offers from competing providers of auto financing -- auto loans, personal loans, home equity loans and credit cards -- and choose the best deal for your situation. With that kind of money on the table, it makes sense to spend a few minutes checking out competing deals.
Leasing Your Car
Leasing allows consumers to drive a better vehicle than they can afford to purchase. In addition, there is often little money down required on a lease option. When you lease a vehicle, keep in mind that you may choose to turn the car back over to the dealer at the end of the lease, or you may choose to purchase the vehicle by paying the amount agreed upon in your lease contract.
Use a Home equity Loan for Car Financing
Buying your car with a home equity loan can make sense. Interest on home equity financing is often tax-deductible, and the interest rate itself may be lower. The payment could be especially low, because home equity terms are often as long as 15 years. That's not necessarily a good thing, however. Most financial experts say that loan terms should not exceed the expected useful life of the car.