Car Financing: Know Your Options
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.
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.
Use your credit card
Okay, generally it doesn’t make sense to buy a car with your credit card. But if you have the cash to pay it off, then couldn’t you benefit from the points or miles or whatever bonus you get from your credit card. In some cases, the dealership may not accept your card, since they have to pay a fee on the transaction, or it may have a limit on how much you can charge to your card. In this case, you may want to just put the down payment on your credit card.
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.
If you have a good credit rating, you may want to take out a personal loan to buy your vehicle. You’ll want to compare personal loan interest rates with auto financing offers and choose the best deal. When you complete a form for a personal loan at LendingTree, you’ll be able to compare personal loan offers from multiple lenders.
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.
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.
Compare your finance options
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.