Deciding how to finance your new car is a big decision that shouldn't be made without comparing your options or you might find yourself paying too much in interest and fees. Once you know how much you can afford to borrow and how many months you'd like to spread the cost of the car over, it's time to get some quotes and settle on the finance option that works best for your situation.
Here's an overview of three popular finance options for you to consider:
Using an unsecured or secured personal loan to pay for a new car can be a good option if your bank offers preferential rates to existing customers. That's not to say you won't get a good deal if you take out a loan with a bank you don't have an account with, but the most attractive interest rates are often saved for existing customers as the bank is able to assess how you've been handling your money.
Unsecured loans are a bigger risk for the bank, so interest rates are typically higher and application criteria more stringent than is the case with secured personal loans. A secured loan requires collateral, so in the case of buying a car, the bank could repossess your car if you're unable to keep up with your loan payments. This makes a secure loan less risky to the bank and cheaper for you.
One of the major benefits of using dealership finance is that you can drive away in your new car the same day you decide to buy it. This instant access to finance makes it a tempting prospect, but don't let the excitement of buying a car cloud your judgement or you may end up paying more than you can afford. The salesperson you're working with likely has a vested interest in in signing you up with their finance provider there and then as they have targets for finance package sales as well as car sales.
They may be offering you a great deal with a low interest rate, but it's prudent to get a written quote and compare it with what's on offer elsewhere before making your decision. If you're able to find a dealership offering a cheaper finance package, go back and ask the first dealership if they can do any better.
Did you know that car manufacturers often offer financing on their brand new models? Factory financing, as it's known, can be arranged in a couple of ways. You can make monthly payments to cover the total cost of the car in the same way you would if you bought a car from a dealership and the loan rate may be better or worse than what a dealership could offer you.
Alternatively, you could opt to pay the manufacturer a lower monthly payment that doesn't cover the entire cost of the car during the repayment period. At the end of the agreed repayment period, you would either hand the car back to the manufacturer as if you had been leasing it or you would pay a predetermined lump sum to cover the amount that's outstanding.
Before opting for this type of finance arrangement, ensure the lower monthly payments don't tempt you into choosing a car you won't be able to finish paying for at the end of the finance period.
When looking at the various finance options available to you, don't forget to take the cost of keeping your car on the road into consideration when deciding what you can afford to pay monthly. Contact a company such as SMA Finance to learn more.
My name is Jamieson and my family refers to me as a self-made millionaire. That isn't exactly true. I am very successful financially, but I didn't do it on my own. With parents who showed me the value of money, an exceptional economics teacher who taught me how to grow an investment from just twenty dollars and sound financial advice from people I trust, I managed to achieve my dreams and financial security. I meet many young people who simply don't have the know-how to turn their earnings into investments. I started this blog to share some of the advice I received over the years and highlight some of the best options I see out there in the marketplace. I hope it helps you to plan and start your own journey to financial success. Money doesn't grow on trees, but with the right advice, you can make it grow yourself.