When it comes to financing a car, there are various options. While some are better than others, there are some things you should consider before making your choice.
Dealerships often mark up interest rates on loan offers from lenders, so it’s essential to shop around for car financing. Getting preapproved from a bank or credit union before you shop around can help you avoid those hidden fees and charges.
Bank financing
Financing a car is best done through banks or credit unions. These financial institutions typically offer lower interest rates than other lenders and may also provide more flexible repayment terms to qualified borrowers.
Banks take into account several factors when approving a loan, such as the borrower’s credit history and income. They usually require good credit scores, an established job history, and minimum income requirements.
However, they can still reject your application if it doesn’t meet their standards. A few points can make a big difference in your credit score, so it’s worth working on improving it before applying for an auto loan.
Alternately, you could go directly to the dealership and request an offer. They may be able to give you better terms than other creditors. Furthermore, their salespeople might suggest manufacturer-sponsored programs with low rate or incentive financing options.
Dealer-arranged financing
If you’re in the market for car financing, dealer-arranged financing is your best bet. This option provides more freedom with lenders and gives you the opportunity to find lower interest rates and better terms.
Another advantage of dealer-arranged financing is convenience. You can apply for a loan right there on-site, which saves time.
However, you should be wary of dealerships who attempt to charge more than the vehicle is worth. Doing so could result in thousands of extra payments.
To minimize the likelihood of this happening, do your research before entering a dealership. Look for competitive offers from lenders online and at your credit union or bank, then use those as leverage to negotiate a lower interest rate with the dealership.
Credit card financing
Financeing a car depends on your individual situation, but credit card financing is often chosen because it offers flexibility and the option to pay back in installments over time. Furthermore, this gives you an opportunity to build up your credit score which could enable you to qualify for better terms or even lower interest rates on loans.
Some credit cards provide 0% interest rates on new purchases and balance transfers, which can save you money in the long run. These offers usually last only a certain period of time, so make sure to check with your card issuer to see if these deals are right for you.
Furthermore, these loans are easier to qualify for than bank or dealer-arranged financing. You can receive a cash deposit into your bank account within days, then repay the loan in monthly installments over an established term at a fixed interest rate.
Longer-term loans
When purchasing a new car, long-term loans offer the most suitable option. They have lower monthly payments than short-term loans, which could prove advantageous if you are trying to build credit.
The term length of a loan plays an important role in calculating its total cost. Longer repayment periods, such as 72 or 84 months, usually have higher interest rates than shorter ones.
Higher interest rates can make borrowing more costly. Before deciding whether a longer loan is right for you, it’s essential to weigh its pros and cons carefully.
The primary advantage of long-term loans is their lower monthly payments, but they may provide other advantages as well.
