If you’ve read various articles about buying a car, you are familiar with the car sales language and the ways of negotiating with a professional car salesman. Let’s say you’ve settled for the best deal and eventually agreed to a price you can afford.
Not many people are aware of the ins and outs of car dealership. When they finance a new car, the finance person is actually working on his commission. They will never tell you that the whole financing deal you get is still up in the air, though.
Things that get added on in the last phase of the deal such as alarm systems, undercoating, extended warranties, and the likes – are always what the dealership is all about: making money on these. The finance person’s role is to sell you of such items after you’ve said yes to a price for a car.
If you’re like many people, paying money to buy a new car isn’t in the least possible to get one, anyway – and even if it IS possible, you may not consider to use your own money in the bank for a new vehicle. This means that you are either going to buy the car by financing it, or by leasing. If you’ve decided on the former, then you’re most likely financing it through the car dealership, a family member, an online financial institute, or through a bank or credit union.
While car leasing is a good option for many situations, it’s a different story. If you know how you want to buy a car through financing rather than pay in cash, then you are required to read this and decide how to get the best financing deal through auto loans.
On the other hand, if you have the cash for your car and are thinking of doing it, how sure are you if it is really the best thing to do? Below are some instances when buying a car and paying in cash is in your best interest:
– If you have plenty of debt already but enough money on hand, and don’t want to add any more damage to your credit standing;
– If you don’t have a very good credit standing and would have to pay a high interest rate;
– And, if you could pay a lot of interest by financing, that total of money than you could earn if you kept it or put it in a bank instead.
However, if you’re like several people, you definitely need to finance your car. Below are the pros and cons of auto loans:
– Pros: Sometimes competitive, fast, and convenient.
– Cons: Can cause a lot of pressure, normally not competitive. be ready for a great sales push on car accessories. Auto loans are always front-loaded (payments comprised of more interest at the start of the loan than toward the end – that’s not good if you think you may be paying the auto loan early as expected).
Credit or Bank Union
– Pros: Always can determine if you’re paying a lot for a car, no sales pitch for accessories and the likes, personal service, and good, competitive rates are available. Both always offer disability insurance with loans, or life insurance for free – loans are normally offered with simple interest and is spread out evenly throughout the loan’s term).
– Cons: Compared to dealership financing, it is not as convenient; can’t set up any appointment for such on evenings or on weekends.
Home Equity Loans
– Pros: Competitive rates, and you can subtract some of the interest off your taxes.
– Cons: It may be risky to include your car to your home loan.
Friend or Family member
– Pros: Normally competitive rates, sometimes flexible, easy, with personal service.
– Cons: Could jeopardize ties with both.
How to Determine the Rate
In auto loans, when financing a new or used car, the interest rate you get can differ quite a bit from the rates being offered on newspapers or on TV. Your credit rating is probably the main influence on your rate; both credit score and credit history tell creditors a lot about your financial status, and are there to give them an idea or two of what their risk is – if they lend you the money you need. If your loan is seen as high-risk, they always increase the interest rate.
Another factor that influences the rate you get is the loan’s term. Normally, the shorter the loan, the lower the rate is. Always remember that the shorter the loan term, the higher your payments will be.
Compared to new cars, used cars will have higher rates. Lower rates apply on new cars. In some cases, credit unions charge the same rate to both new and used cars.
Another factor is your location. Your friend may have gotten eight percent on the other side of the country, but in your location, eight to ten percent may be the lowest rate you can get.
While these are just a few of the typical things that influence the rate you find through a financial institution or a bank, financing through the dealership may or may not work as stated above.