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Car loans
Car Loans:
Getting Your Best Car Finance Option

Looking to buy a car? Chances are you're doing your homework. You will probably visit several dealerships, test drive a few different models, ask your network of friends and family for advice, and search the web for some ratings, right? What kind of research have you done in regards to a car loan or car finance?

Well, surprisingly, many people spend a great deal of time comparison shopping for the perfect car for their needs, but they fail to do the same thing when it comes to comparison shopping for car finance.

A car is a significant purchase and it really can pay—saving you hundreds of dollars—to do a little legwork when it comes to taking out a car loan for the purchase. Options abound when it comes to financing a car. Here is a list, along with some pros and cons of the various car loan options:

The Personal Loan

As difficult as this may be for you (yes, we know that you’re itching to go for a test drive) you have a very critical step to take first. Before you even start to look at actual cars, check out personal loan rates and figure out which lenders offer the best car loans rates. The gap between the lowest and highest car loan rates can easily be as much as two percentage points, so it's definitely worth shopping around. Although a percentage point may not seem like a lot, think about it this way: it could mean savings of a few hundred dollars over the life of a typical loan.

Once you have identified the lender with the lowest car finance rates, be sure to get pre-approval for your car loan before you hit the showroom. After all, there is enough work to be done at this stage negotiating the best price for your car without having to worry about car finance negotiations at the same time. Pre-approval will also give you a realistic idea of the type of car you can actually afford before you get tempted by an enthusiastic salesman trying to sell you a flashy car beyond your means.

The loan you take out for your car will vary in terms of length depending on your personal preference and whether you take out a secured loan or an unsecured one. Secured loans can last longer and can be given for large amounts of money because you use your home to guarantee your borrowings. One good tip here is to think about the length of time you plan on owning the car, since you definitely don't want to have to keep paying for a car you no longer own. Make sure the term of the car loan is shorter!

Remember, too, that even though a longer car loan term will reduce your monthly payments, it will also increase your total interest costs significantly.

Car Dealer Financing

Car dealerships usually offer their own car financing arrangements, which many consumers take advantage of simply because it provides the convenience of one-stop shopping.

However, if you choose this option, make sure that you don’t discuss any car financing arrangements until you and the dealer have agreed (in writing) a purchase price for the car. For example, if you tell the salesperson what you would like to spend on a monthly car payment, it is easy to get confused by all of the numbers they will throw out at you—something he/she does to make you lose sight of the really important figures, i.e. how much you're paying for the car and what interest rate you're being charged.

Bear in mind that car dealership financing, while convenient, can cost you a lot more than other lending options.

Home Equity Loan

If you own your own home, you can consider it as a loan option. Home equity loans allow you to borrow against your home equity, which is the amount of the current value of your home minus the principal owed on your mortgage. Remember, though, that you are putting your house on the line with a home equity loan, which means that missed payments could lead the lender repossessing it. Is it really worth the risk for a car loan?

Leasing

For those who prefer to get a new vehicle every two or three years and who can accept monthly car payments on an ongoing basis, leasing has become an increasingly popular alternative to buying a car with a car loan. To determine whether leasing may be right for you, consider the following:

The Case FOR Leasing:

  • You just may be able to drive that otherwise-unaffordable dream car, as leasing fees may be a cheaper alternative to buying the car than other car finance options.

  • Monthly payments may well be lower than what you would pay with other car loans options.

  • The hassles of selling your car or haggling with a dealer over trade-in value are eliminated.

  • You may be able to choose a new lease car when your contract ends.

  • If you use your car for work purposes then you may be able to claim back in taxes.

The Case AGAINST Leasing:  

  • You don't actually own your car at the end of the leasing period as you do with car loans or other types of car finance. However, depending on the leasing terms you negotiate, you may have the option to buy the car at a pre-set price that ends up being lower than the true market value of the car when the lease ends.

  • Excessive wear and tear and driving the car beyond any pre-set mileage limits may incur additional costs at the end of the leasing period.

  • If circumstances change and for whatever reason you want to pay off your lease early, you will usually have to pay a penalty fee.

  • You’ll probably have to pay for comprehensive insurance coverage as you don’t own the car.

Whether you buy or lease your car, and whatever kind of car finance option you choose, ensure that you shop around for the best car loan rate.

Visit our auto loan listing

 
 
 
 
 
 
 
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