Car finance refers to the money borrowed from an institution to purchase a car. Normally it becomes a form of loan which you have to pay back over an agreed period of time. Depending on your financial position, you can finance a new car or the used one.
You can get your car financed simply by applying for a loan. Loan can be applied either with a specialized lending institution or with a car yard for itself. Car financing is simple in the sense that cars are collateral so the risk to the lender is low. If you default on payment, they can simply repossess the car.
How can you get your car financed?
It is important to check your credit up front before going for financing a car. The better your credit, the lower your financing rate will be. Make sure you have a credit report free of mistake or omission. Make comparison of all the sources and go for the one where you can apply soon and can be delivered a check as early as the next day.
Through Local Banks or Credit Unions
Try to go for a local bank or credit union in order to finance a car. Local bank facilitates the possibility of relationship with your banker but rates may be uncompetitive. In case of credit union you are facilitated much because your car payments are deducted from your pay.
Through Home Equity Loans
It has become the most popular way to finance a car in recent year. The possible tax deductibility of the interest paid on such loans is the biggest advantage of such loans. But it is always recommended that not to borrow in excess of your home’s value.
Through Dealer financing
Dealer financing may or may not be the best option for you to go for car finance. The only advantage of dealer financing is that you buy and finance at the same place. Variation of the interest rates makes it a non favorable method of financing the car as dealer sells the car for his profit not for yours.
Through Leasing
Check out that leasing can be advantageous for you or not. It suits to some of the customers. For the others, it can be a complete disaster.
Important Factors
- Always look at the deal you are getting before applying for car finance. Consider the interest rate and try to get as low as possible.
- For the people with bad credit history, it is harder to get a good deal but your credit rating will be improved if you keep up with your payments.
- Some companies will charge a penalty if you pay off the loan early. Try to find out what penalties are occurred if you miss the payment or want to pay off early.
- Try to get help from loan calculators which are tools to make good choice while going for car finance. These calculators tell you the total cost of your loan and how much you have to pay monthly.
- If you keep cars for longer period, it is ok but if you trend to trade frequently, it is problematic and can become a night mare. You can prevent this situation through following ways
- Over extension of your finance terms can be harmful for you. For example, 72 or 48 months reduce your payments but locks you into the care for at lest 3 to 5 years.
- Buy payment protection insurance only in case you can really buy it, because otherwise it can cost you much more.
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