Everything you need to know to finance your new car
Buying a new vehicle is a major investment for most people. In fact, it’s the second-largest purchase in a person’s life after buying a home. So it’s important to make sure the transaction is done properly and it suits your needs.
Fortunately, there are a number of ways to finance the purchase, most of them available either through your dealer or banking institution.
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Of course, if you’re a saver, you may have enough money on hand to cover the total cost of buying the vehicle. This may seem like a great idea at first, but you need to analyze it.
If your money is well invested, it may not be a good time to make a withdrawal. You could incur administrative fees, or you’re money might be invested at a higher interest rate than you would pay on a car loan. In other words, if you have an investment that pays 3 to 5% interest and a lender offers you a loan at 0.99% interest, it will cost less to borrow than to withdraw funds invested at such high rates. So take some time to think about it. You could be better off making a simple cash down payment.
There are many possibilities here. Most auto companies offer financial services, either directly or in association with banking institutions. They’ll be able to offer you a financing rate directly linked to your car, and everything will be done at the dealership.
Better yet, by working directly with the dealer, you could buy a model that comes at a discounted interest rate, which means lower financing costs. You could also vary the length of the loan. Talk to the sales representative or finance manager about it.
Would you prefer to do business directly with your own institution? No problem. Most banks and other credit institutions offer loans directly related to the purchase of a car. You can even get pre-approval and shop with peace of mind knowing exactly how much money you have. But don’t expect the preferential interest rate of 0.99% offered by your dealership. Only manufacturers’ representatives are authorized to make such offers on specific models.
Here, we’re talking about a long-term lease that spans several years. This option, like purchase financing, has its advantages and disadvantages. One of the main benefits is that monthly payments are often much lower than when you buy. However, you have to return the car at the end of your contract. You don’t own anything. It’s the ideal solution for people who want to change cars often without worrying about resale.
Second- and third-chance credit
Even if you’ve had a few small financial glitches in the past, you can still obtain financing for a new car. You should know, however, that the credit is only available for purchases, and the rates are higher than those generally offered by other institutions. Still, these loans will enable you to drive a car that suits your needs.
One final tip
The tip is really more about negotiating than financing. When you talk to a dealer’s finance manager, don’t hesitate to ask about a loyalty discount program. It could save you a few hundred dollars if you’re a graduate or you’ve been loyal to a brand. But it only works once in a lifetime!