Financing Options When Buying Your Next Car


With the average price of a new car hitting $33,560, most people do not pay cash to purchase a vehicle. Even used cars have seen rapid increases in prices, as newer technology expands their life, reducing the speed of depreciation. Financing options play a big part in the total cost of the vehicle. A few points of interest spread across five to seven years can add thousands of dollars to the total cost of the car.

Before you enter the dealer lot, consider these common financing options:

Dealer Financing is convenient because it creates a one-stop shop. There was a time when dealers only financed customers with good credit, but many now offer, high-interest rates loans as well. You go into the dealer showroom, pick your car, and they do all the paperwork. However, this strategy may not give you the best terms or price in the deal. Both new and used car dealers offer to finance through lending partnerships they maintain. Incentives or commissions may entice dealers to use particular lenders.

Financial Institutions such as banks or credit unions offer vehicle loans directly through the institution. For those with good credit, a bank or credit union may often offer better rates than dealers. Online banks are also an option when the rate is the primary factor. Financing a vehicle through a financial institution may require a few additional steps to close the deal.

Manufacturers financing may be an option through a dealership, but is not the same as dealer financing. Dealers work with local lenders for dealer financing. They also offer special pricing through a manufacturer’s financial group, when certain models are selling slow. When you see ads for 1.9% financing on specific vehicles; this is likely manufacturing financing offered through a dealer. Selection is limited and may include certified pre-owned vehicles and only vehicles already in stock.

Lease financing is often the preferred method for luxury vehicles. They require a substantial down payment but low monthly payments for several years. At the end of the lease, you return the car to the dealer and pay any addition fees owed based on the vehicle’s condition and the miles driven. A lease requires higher front and backend costs, but lower monthly payments.

Home Equity loans can be used to purchase the car of your choice. Those with equity in their homes and good credit may secure the loan with their home instead of your vehicle. Rates will be low, but not as low as special offers, but the interest may be tax deductible.

Many buyers research and shop for the perfect car, without taking much thought to financing. While the initial cost of the vehicle is important, it is critical to take note of the long-term costs after considering the total cost of buying a vehicle. By keeping an eye on the loan’s total cost, you can purchase a car while keeping payments affordable. Consider both the number of payments required as well as loan fees and the interest rate charged.

Explore all your loan options before deciding how you will pay for your vehicle. The more knowledgeable you are, the lower your overall costs will be for the car of your choice.