How will you finance your car is a vital question that every person wanting to buy his own vehicle has to answer. As a soon-to-be car owner, it is your responsibility to ensure that you are fully knowledgeable before you make a purchase.
Dreaming of driving around the city with a new car? Well, that is possible! As long as you have the money to buy one, that should not be a problem.
But what if you don’t have the means? Does that mean your dream of driving your own car is over? The answer is no. Fortunately, there are several ways to finance your dream car, and that is exactly what we are going to talk about today.
Having a car is not just a want. In this day and age, owning a car is a necessity. More than the comfort of driving your own car, having one helps us feel more secured, and allows us to save more time. More so, owning a car allows you to travel — going from one place to another anytime you want to, and anytime you need to.
Just a quick interesting fact. In a nationwide survey conducted by The Zebra, they found that “the majority of people (63% to be exact) believe that owning a car is necessary, despite the availability of other options like public transportation and ridesharing”.
Meanwhile, in a report by Statista, it says that there are 1.88 average vehicles per U.S. household. Furthermore, based on the data of the U.S. Department of Transportation, “the percentage of households without a car or light truck came to around nine percent in 2017, meaning that about 90 percent of households had at least one light vehicle at their disposal in that same year”.
Furthermore, in a poll by Gallup, it has been found that about 64% of respondents claimed to drive on a daily basis, while 19% of the respondents say they use a motor vehicle a few times a week.
You see, all the data we provided only shows how owning a car or driving a car is a day-to-day thing for most Americans. So, if you are someone who is hoping to have one, that’s pretty normal. After all, as the reports said, owning a car is not just a want, but a need.
Anyway, as mentioned earlier, today, we are going to share with you some ways on how will you finance your car – your dream car. We are going to look into each way, and hopefully, we’ll be able to enlighten you as to what way fits you best.
WHY OWN A CAR
Before we even tackle the different ways on how you will finance your car, let us first and foremost answer the question of why you should own one.
As we mentioned earlier, a lot of people believe that owning a car is a necessity. Meaning, a lot of people see it as a need and not a want. You need it is going to work, to school, to make errands, etc.
But really, with a lot of other options to take you from one place to another, why own a car?
Let’s face it, owning a car is a big responsibility. You have to take a lot of things into consideration. But one of the major things that you have to take into account is the financial aspect.
Buying a car these days is not cheap. Once you have the car, maintaining it costs a lot as well. As a soon-to-be car owner, you have to make sure that you know these things beforehand. Otherwise, you might get overwhelmed with too much responsibility.
With regards to purchasing, you will have to do a lot of decision-making. Apart from the brand, model, features, price, and more, you will also have to decide whether you will go with a personal loan or a car loan (unless of course, you have all the money to buy a car in cold cash). Also, you will decide whether to get a commercial bank or a credit union or go with a dealer to help finance your car.
You see, from all that we have mentioned alone, it’s pretty obvious that buying a car is more complicated than you think.
But! Don’t lose hope. That is precisely why we are here today.
FACTORS TO CONSIDER WHEN BUYING A CAR
There are a lot of factors that you need to consider when buying a car. Some of them we already mentioned a while ago, but to give you a clearer view, here are some of the common things you need to take into consideration before buying your dream car:
- Your Budget – You have to set a budget. We all know that budgeting is important. Having a budget will help keep you on track. Also, it will help you trim down your options.
- Personal Income – This is very important especially if you are going to borrow money from a financial institution. You have to ensure that you have enough means to pay for the car that you like.
- Credit Score – Just like anything in the financial world, the better your credit score is, the better your options will be. That is also applicable when you are buying a car — especially if you are looking at loaning money from the bank or from a credit union.
- Price of the Car – There are so many car options out there, and they all differ in prices. Make sure you are fully aware of how much the car you desire is. This will help you decide whether it is within your budget or you will have to look for something else.
- Interest Rate Offered – There are so many lending institutions out there. Make sure that before you make a purchase, you compare interest rates from different lending companies, and choose the best possible rate.
- Term of Loan Offered by the Lender – This is usually by years. Just like the interest rate, also check the term of the loan. This will help you calculate whether you can afford to pay it for x number of years or not.
- Personal Loan or Car Loan or Dealership – These are the three main sources of money. Meaning these are all financial entities where you can borrow money to be able to finance your dream car. It is important to check the pros and cons of each so you get to choose the one that is perfect for you.
FINANCING YOUR CAR
This time, let us move on to the real deal – how will you finance your car? As mentioned, there are several ways to pay for your car. But there are three major ways commonly used by car buyers. They either do a personal loan, an auto or car loan, or through a dealership.
Before we move on, if you want to know more about car financing, you may check out this video content made by Bladed Angel. It’s very informative, and it will really open your eyes to the ways on how you can finance your dream car. Check the video by clicking the play button below:
Done watching? Now, let’s take a look into each of the following financing options, which we already mentioned earlier:
Take note that personal loan is totally different from an auto loan. Although personal loans can also be used for buying a car, these are handled differently from a car loan.
To enlighten you further, and help you understand this form of borrowing money, here are its pros and cons:
- Cash in Hand – If you want to get your dream car at a lower price, the best way to do that is to pay in cash. Whether you are buying the car from a private seller or a dealer, paying in cash will always give you big discounts from sellers. Good thing if you have savings, otherwise, you can rely on a personal loan to do that.
- Signature Loan – The best thing about a personal loan is that it does not require any collateral, which is the case when you opt for a car loan. You basically have to agree on the terms of the bank, and then, once the bank accepts your signature, you’re done. You get the money, and you may now buy your dream car. A personal loan is an unsecured loan. Thus, your car will not be used as collateral. So, in case you fail to pay, the car will not be taken away from you.
- Good Bank Relationship – If you have already established a bank relationship, it would be easier for you to negotiate a better interest rate on the personal loan. More so, having a good relationship with the bank will also serve you well in case you pay late or miss a payment.
- Interest Rate – While having a relationship with the bank can benefit you in terms of interest rate, compared to car loans, personal loans interest rates and annual percentage rates may be higher. The higher interest rate for personal loans compensates the bank for the increased risk given the fact that they do not require collateral for personal loans.
- Incentives – Banks, as well as credit unions, do not offer incentives such as rebates or 0% financing as compared to dealers.
A car loan is the most ideal when it comes to financing your car for obvious reasons. It is, after all, specifically intended to cater to the needs of car buyers.
Anyway, here are the advantages and disadvantages of getting a car loan:
- Customized Repayment Scheme – This is perhaps the biggest advantage of getting a car loan particularly with banks. You can create a loan scheme that provides you both flexibility and affordability. This, however, depends on the terms of payment and your down payment for the car loan.
- Accessibility – Whether it be online or offline, through bank or credit unions, car loans are everywhere and are easily accessible. Some are even too accessible you can finish a car loan transaction in less than an hour.
- Affordability – unlike dealership, car loans allow you to make monthly payments depending on how much you can afford.
- Building Credit – An auto loan is one great way to help build a good credit standing — as long as you are on top of it, of course, which means you pay regularly and does not miss a payment due.
- Interest Rate – The interest rate usually depends on your personal credit history as well as your credit score. The better your credit history and score are, the lower your interest rate may be.
- Insurance – Once your car loan is approved, the insurance goes up drastically as well, which is not the case if you borrow money to buy a car from somewhere else.
Most of the time, the go-to place of people buying a car is through dealership financing, which is not bad at all because unlike banks and credit unions, dealers offer a lot of benefits to buyers. For instance, a lot of dealers offer incentives. They are able to offer low-interest rate financing because of comparison shopping. In some cases, they can afford to provide 0% financing. More so, dealership financing is also very convenient.
For more pros and cons, check below list:
- Showrooms as One-Stop-Shop – As mentioned, it is more convenient to buy a car through dealership financing as you are already there shopping for your dream car. No need to go from one place to another. It’s like everything you need is already handed to you.
- In-House Financing – Dealers’ in-house financing is more lenient when it comes to requirements as compared to loaning money from banks and credit unions. Basically, all you need are records that show you are able to pay, and of course, that you can drive a car out of the dealership. That’s all and you are good.
- Higher Interest Rates – Although most dealers can offer a lower interest rate because of comparison shopping, other dealerships may tend to give a higher interest rate as compared to banks and credit unions. Also, the longer you pay the loaned amount, the higher the interest will become.
- Aggressive – Dealers are usually aggressive when selling products to potential buyers. If you are not focused enough on what you want, you may end up being swayed in buying a higher-priced unit than what you can actually afford.
- Collateral – The thing about dealership financing is that when you are unable to pay for your borrowed money, your car may be repossessed by the dealer. Note that borrowing money through dealership financing is a secured loan, thus, the car becomes the collateral automatically.
OTHER TIPS WHEN BUYING A CAR
Now that you already know the factors you need to consider, as well as the different ways on how will you finance your car, here are a few more helpful tips you may consider before you head on buying the car of your dreams.
1. Check and re-check your credit score. Your credit score, as well as your credit history, are two important things that you need to look into before heading to either bank, credit union, or dealer. They all look into that to have your loan approved. So, make sure you do have good standing. Otherwise, you may either get declined or you won’t get the exact amount you need for the care you are eyeing for.
2. Get financing quotes. Another important thing you need to do before you process any loan is to get as many financial quotes as possible. This will help you find the best financing rates for your desired loan amount. If you do not have stellar credit, you may try online lenders. Just get as many options as you can.
3. Research financing institutions. Apart from getting financing quotes from financial institutions, it is also ideal to research about these institutions. It’s about knowing how credible they are, and also how they treat their customers/borrowers.
4. Make a 20 percent down payment. While the idea of driving your new car without putting a single penny down is tempting, choose to make down payments instead. This will help lessen the money that you owe, which in turn can shorten the time you need to pay for the loaned amount.
5. Set up automatic payments. This helps a lot in staying in good graces with your lender. Also, this helps you avoid putting your credit score in a bad light. By setting up an automatic payment with your lending company, this helps you not miss a single payment.
FINAL THOUGHTS ON HOW WILL YOU FINANCE YOUR CAR
As mentioned, there are three major ways of how will you finance your car should you decide to buy one. But along with these ways, you also need to factor in a lot of equally important things to be able to get approved for a loan, as well as to be able to ensure that you have the capacity to pay for it.
Finding a financing institution to be able to buy a new car is actually not hard as these days, banks, credit unions, as well as dealers are all over the place. A lot of them are actually just a click away (because they are available online).
Have you decided what financing institution to deal with?