Buying a car is a big decision, and figuring out how to finance your purchase is no less important. This article will discuss the different ways in which you can go about financing your auto purchase.
You can get a car loan from several different types of lenders such as car dealerships, direct lenders (such as a bank) and online lenders. You will need to have all of your current financial information, such as your employer information and gross monthly and/or annual income, available to start the loan process. For direct and online lenders, they will want to know the amount and length of the loan and the car year, make and model. No matter how you finance your car, being prepared with your credit report and credit score is critical before you start searching for a loan. This is especially true when you obtain car finance through a car dealership. It is recommended that you bring in copies of your report and score in case they make an incorrect assessment of your credit worthiness and offer you a higher APR on your loan. It is also important to know what your monthly budget is. A general guideline for the amount of a car loan is 20% of your net monthly earnings. Weighing all of your options with each will help you decide the best route for you.
Obtaining financing through a dealer does have its benefits; it is convenient, as it offers one stop shopping for both the car and the loan. Dealers work with several financial institutions that can provide loan options for nearly everyone; including those with poor or little credit history, and sometimes the lenders will offer various incentive programs. There are several drawbacks of dealer financing to consider, however. In general you will most likely pay a higher interest rate on your car, especially if you have bad credit. Many dealers are offered a factory-to-dealer incentive, which means they will get a refund from the manufacturer and the dealer makes money no matter what price they sell it for. Often a dealer will be able to offer a low monthly payment or smaller down payment, but you end up paying for this with higher interest rates and/or a longer loan time.
The alternative to dealer financing is to get a car loan through a direct or online lender. Although it requires you to do the legwork to shop around and to secure the loan, it offers several advantages. Typically you will get a lower rate with these lenders than a dealer. Online lenders are more competitive with their programs ? they often will compete for your business and can offer lower rates, as many times they are an outlet or a reseller for direct lenders. The other, perhaps most important, benefit with this financing option is you can walk into the car dealership and negotiate the price of the car like a cash-paying customer since you?re not at their mercy for extended credit.