How to finance a car
Meaning Of Finance
Finance is the commercial activity of providing funds and capital.Car Finance .Financing the purchase of a car can be confusing, with such a wide range of car finance options available to you. Do you get a personal loan or do you go with a manufacturer's deal and part-exchange your current vehicle.
The most common ways that car finance is raised:
1. Hire Purchase:
This option is offered on new and used cars by dealers and can be fairly easy to arrange. However, you do not own the car until the final payment, which means you cannot sell it until you have settled up your loan.
Interest rates vary, but can be competitive against bank loans.
2. Remortgage
While you may spend the next 20-odd years paying for your car, remortgaging is still the cheapest way to borrow. If you are a homeowner, most mortgage companies will allow you to borrow more for other things like car purchase.
3. Interest-free Finance
Available from car dealers, interest-free finance is normally for brand new cars only. However, these can be a great way of getting a new car without paying interest on any finance. However, getting interest-free finance and a discount at the same time can be hard , so it may pay to haggle hard on the price of the car and borrow elsewhere.
4. Personal Contract Purchase
Monthly payments from your bank account are spread out over a pre-defined period (normally 2 - 4 years). At the end of the period, you either make a lump sum payment to purchase the car outright, or you hand it back.
5. Personal Loan
A personal loan can be arranged separately from the purchase of a car, meaning that in the eyes of a dealer, you are a "cash" buyer. Personal loans can be arranged via banks, building societies and finance houses.
6. Car Loan
This is another name for a personal loan, although you may get additional benefits such as payment ?holidays? or a free car inspection prior to purchase.Sources of Financing .There are several different ways that you can finance your car, and there are pros and cons about each of them. Dealership
- Pros: Convenient, fast, sometimes competitive
- Cons: High pressure, usually not competitive; be prepared for a big sales push on add-ons ; loans are often front-loaded (payments are made up of more interest in the beginning of the loan than toward the end -- that's bad if you think you may be paying the loan off early.)
- Pros: Competitive rates, personal service, no sales pitch for add-ons ; often can tell you if you\'re paying too much for a car ; often provide free life insurance or disability insurance with loans ; loans are usually simple interest loans (interest spread evenly throughout the term of the loan)
< ;li class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto; mso-list: l0 level2 lfo1; tab-stops: list 1.0in">Cons: Not as convenient as dealership financing -- can\'t set it up at night or on the weekend
- Pros: Usually competitive rates, quick, easy
< ;li class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-margin-top-alt: auto; mso-margin-bottom-alt: auto; mso-list: l0 level2 lfo1; tab-stops: list 1.0in">Cons: Not a personal service; dealing with an unknown; some scams to watch out for
- Pros: You can deduct some of the interest from your taxes; competitive rates
- Cons: You\'re tying your car to your home (may be risky)
- Pros: Personal service, easy, sometimes flexible ; usually competitive rates
- Cons: Could jeopardize a relationship
Determining the Rate
The interest rate you get when financing a new or used car can vary quite a bit from the advertised rates you see on TV or read in the paper. Probably the biggest influence on your rate is your < ;B>credit rating. Your credit history and credit score tell lenders a lot about your money habits and are designed to give them an idea of what their risk is if they loan you money. They often raise the interest rate if your loan is seen as high-risk.
Another thing that affects the rate you get is the length (term) of the loan. Typically, the shorter the loan, the lower the rate. Keep in mind that the shorter the term, the higher your payments will be.
Used cars will have higher rates than new cars. The newer the car, the lower the rate. (You may find an exception to this rule at some credit unions. Some give the same interest rate for new and used cars.)
Your geographic location can also be a factor in the rate you get. Your cousin may have gotten 7 percent on the other side of the country, but in your home town, 8.5 percent may be the lowest rate you can find.
While these are the usual things that affect the rate you get through a bank or other financial institution, financing through the dealership may or may not actually work this way.Dealer Financing
You\'re in the "Finance and Insurance" office setting up your financing with the business manager. Your guard is down now that the deal is done, and you\'re really excited about driving home that new car. Make sure you\'re not so euphoric you forget to use good judgement for things like : Interest rate, term of the loan, down payment, rebates, and monthly payments: Remember you can negotiate that interest rate. Make sure every element is spelled out on your contract and is correct. Don\'t sign until you\'re satisfied that all of the numbers have been filled out correctly. Also, make sure the interest rate you are agreeing to doesn\'t change during the term of the loan, and ask about prepayment penalties. Remember that the bottom line is how much you\'re paying for the car, not what your monthly payment is. You may be getting a really low monthly payment, but how long will you be paying it ? Almost any payment level can be reached if the loan term is long enough. Make sure there is no "subject to financing" or "subject to approval" statement on the contract
Extended warranties:
The business manager will always offer you the extended warranty on your new car. Some experts are of the opinion that the warranties that now come with new cars are comprehensive enough that you don\'t really need the extended warranty. If you feel you do need it, explore other sources for those warranties so you can compare. You will be able to get a better price (usually half of what the dealer charges), and sometimes even a more comprehensive warranty, by buying one through online sources or through some banks or credit unions.
You can easily apply the fabric protection and paint protection yourself. The fabric protection is usually no better than you could do with a can of fabric protector you can buy at the store, and you can protect your paint with any polymer sealant car wax. Even the paint protection the dealer applies has to be reapplied every six months.
If these things are already on the car, then negotiate the price down to something reasonable. Since there is usually a 100% markup, start at 50% of the asking price for each item. If they won\'t budge, then feel free to walk out on the deal.
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