Posted on: 22 July 2015
When you decide to buy a new car, you have several decisions to make. In addition to choosing the make and model, colour and any special features, you need to decide how to pay for your new ride. It's best to weigh up all your options before you start car shopping as this ensures you know what you can afford ahead of time and you'll be less likely to get stuck in an overpriced finance agreement. Here's an overview of common finance options suitable for buying a car:
A personal loan from a bank or credit union you already have an account with can be a good option if you're a young or first-time buyer without much of a credit history. Personal loans aren't known for having the most attractive interest rates, but a fixed rate loan allows you to know exactly what you'll pay every month. You can use an unsecured or secured personal loan to buy a car, but secured loans tend to have lower interest rates and more favourable lending criteria than unsecured loans.
This is because the lender can repossess the car if you fall behind on payments, so there's less risk involved for them. Apply for a personal loan at least a few weeks before you want to buy a car as it can take some time for your application to be processed and the funds to be transferred to your account.
Financing your car with a dealership loan is convenient and in most cases you'll be able to take your new car home the same day. However, it's all too easy to make rash decisions when a salesperson is piling on the pressure. Dealership employees can be pushy when walking you through your finance application as their bonus is often tied to both car sales and loan sales.
This can mean you may be offered a better interest rate from the dealership than your bank could offer you, but the loan may cost you more if the salesperson talks you into paying it back over a longer period of time. If you're considering a dealership loan, get a written quote from them for the car you want to buy and take it home to mull over before making a final decision.
If you're buying a brand new car, check if the manufacturer offers financing. Factory finance differs from a dealership loan as you don't necessarily own the car at the end of the finance period. The manufacturer will offer you a great deal on your monthly payment, which will be lower than you're likely to get from a dealership, but the payment is lower because it doesn't cover the entire cost of the car.
At the end of the finance period you'll either have to hand the car back or pay a lump sum to cover the outstanding cost. Factory finance can be a good option if you know you'll be able to pay a final lump sum, but if you're unable to, you've effectively only been leasing your car during the financing period.
Whatever finance option you decide to use to buy your new car, get the best deal by gathering as many quotes as possible and compare the overall cost of borrowing. It's also a good idea to take fees for missed payments or early repayment into consideration when making your decision. Contact a company like SMA Finance with any questions you have.Share