Understanding The Financing Options When Buying A New Or Preowned Car

Your first car is the best feeling in the world. The sense of freedom you get, the ability to go wherever and whenever you want to, it can be a wonderful feeling. Whether you buy a new or pre-owned car, the financing options that you will have to consider can be a little hard to understand but here is are some options that you might want to consider.

Traditional Loans

When you are buying a car through a dealer, they can likely help you get the financing in order. Most dealerships have a loan or finance manager that spends the day working with the banks and lenders to get people loans for new and used cars. In some cases, you may have trouble getting a traditional loan so the finance manager may suggest other options. It could be a higher down payment, a loan with a shorter term, higher interest, higher payments, or some other alternative. Be sure that you understand the terms of any loan that you agree to and can afford the payments long term. If you don't, ask questions until you get the answers you need.

Leasing Your Car

One option that may come up when you visit the dealership is leasing. The idea of leasing is not new but it does offer some advantages for the buyer and the finance company. The term is much shorter on a lease and typically the lease is about half the value of the car. In many cases, people who lease a car keep it for 3 years or less and then trade it in on a newer car. The finance company gets more interest up front on the loan and the terms often include terms on it that limit miles on the car. Going over the mileage results in the buyer paying penalties at the close of the lease unless they refinance the car and keep it. The result is that the financier gets the interest on the loan, a low mileage used car to resell at the end of your lease, and can charge you additional fees when you close out the lease. The benefit to leasing is that you can have a new car every three years or so but you never break the cycle of car payments.

Personal Loans

While most banks discourage you from taking out a personal loan for a car, unsecured loans are an option if you are buying a car through a private sale. If you have great credit, your bank may loan you the money based solely on your high rating, your past business relationship and your ability to pay the loan back. The upside for you is that if you miss a payment, your car is not securing the loan. While they can't repossess the car, they might be able to attach it as an asset though. Paying back a personal or unsecured loan should be easier because they often have lower interest rates and lower payments as well.

Talk with a place like Frontier Community Credit Union for more advice.

Share