Car Financing Options

If you are like most people in the world, paying cash for a new vehicle isn’t a reality. If you do have the money in the bank, it may be locked in or you may not want to deplete your savings by thousands of dollars. These scenarios leave you two options: lease a car, or finance it.

There are several ways to finance a vehicle. You can apply for a loan through your bank or credit union or borrow the money from a family member or friend. Other options include financing the car through the dealership, an online institution or getting a home equity loan.

Banks and Credit Unions

Pros

Competitive rates.
Personalized service.
No pressure to borrow extra funds.
Knowing if the car you have agreed to purchase is worth the price.
Many banks and credit unions offer free disability and life insurance on their loans.
The loan is usually a simple interest loan with no hidden charges.

Cons

These types of loans have to be applied for during banking and credit union hours.
These are less convenient than loans obtained through the dealership where you are purchasing the car.

Family Member or Friend

Pros

Competitive interest rates or interest free.
Easy, quick and very flexible terms at times.
Personalized service.

Cons

Borrowing money from family members and friends can cause problems within the relationship.

Dealership

Pros

Fast and convenient loans are available, but they may or may not have competitive rates. Often dealership loans have very high interest.

Cons

There’s always pressure for add-ons.
Payments are almost all interest in the beginning, which is a negative factor if you’re hoping to pay off the car loan within two or three years. (Based on a 5 year loan.)
Interest rates that are not locked in can virtually kill your finances. In other words, when the interest rate goes up, so does the interest on your car loan. Avoid this type of dealership loan and also any that have compound interest.

Online Financing

Pros

Rates are competitive.
Loans are simple and easy to get.
Loan applications are processed quickly.

Cons

There is no personal service and often not even a specific person you can communicate with. This can cause a variety of problems.
You’re dealing with people you cannot see and do not know.
These offers can be a ploy to relieve you of your hard earned dollars. Beware of scams.

Home Equity Loan

Pros

Competitive rates.
Personal service.
Partial interest can be income tax deductible in some areas.

Cons

Getting a home equity loan can put your home at risk if you are unable to make payments on it. Be sure to have a disability and life insurance clause included.

Use the tips in this article to decide which type of car financing is right for you. Use caution and read the financing contract several time. Be sure to read all of the fine print.